Question
Analysis of the profitability of adding the Hiking boot into CCB product mix . Prepare a breakeven-analysis of CCB option to add the hiking boot
Analysis of the profitability of adding the Hiking boot into CCB product mix .
Prepare a breakeven-analysis of CCB option to add the hiking boot into its existing product mix.Use the data provided in Exhibits 1 and 2 .Your analysis should consist of a break-even analysis of CCB existing and proposed products along with a summary discusiion.Use the following approach.
1. Calculate the breakeven in pairs for the Iron Horse work boot using the revised budgeted costs in Exhibit 1 alone.
2. Calculate the breakeven in pairs for the hiking boot using the data provided in Exhibit 2 alone.
3. Calculate the breakeven in pairs for both products combined using information from Exhibits 1 and 2.Base the salex mix on the 20X5 budget for the Iron horse product and the expected annual demand for the Robie reid product.
4. Calculate the margin of safety for all three breakeven points calculated in parts (1) through (3).
Exhibit 1
Revised 20X5 budget
| Iron horse work boot | ||||
| Revised budgeted cost per pair-20X5 | ||||
| Qty | Measure | Cost per | Total cost | |
| Direct Material | ||||
| Leather | 1.00 | Square meter | $21.50 | $21.5000 |
| Other lining | 0.25 | Square meter | $19.60 | $4.9000 |
| Structural | 2.00 | Each | $1.95 | $3,.000 |
| Sole | 2.00 | Each | $4.10 | $8.2000 |
| $38.5000 | ||||
| Direct Labour | ||||
| Cutting | 0.09 | Hour | $25.20 | $2.2680 |
| Stitching | 0.14 | hour | $25.20 | $3.5280 |
| Forming | 0.25 | Hour | $25.20 | $6.3000 |
| Soling | 0.18 | Hour | $25.20 | $4.5360 |
| Finishing | 0.11 | Hour | $21.50 | 2.3650 |
| 0.77 | 18.9970 | |||
| Manufacturing overhead (applied based on direct labour hours) | ||||
| Variable overhead | 0.77 | DLH | $10.39 | $8.0003 |
| fIXED OVERHEAD | 0.77 | DLH | $6.46 | $4.9742 |
| 12.9745 | ||||
| Total budgeted cost per pair to boots | $70.4715 | |||
| Metal parts including shank and steel toe. | ||||
| Including eyelets , hooks, glue, waxed thread, cutting wastage on leather and variable factory costs. | ||||
| Fcatory costs including depreciation, property taxes, insurance, supervisory salaries and utilites. | ||||
| Retain all decimals when calculating costs. |
Additional budget information(20X5 budget)
| 20X5 forecast sales(pairs) | 1,175,000 |
| Selling price per pair | $96.50 |
| Desired ending finished goods inventory(pairs) | 20.000 |
| Variable selling and administrative expense(per pair) | $6.50 |
| Fixed selling and administrative expenses(in $000) | $17,600 |
CCB Company
Manufacturing overhead budget(revised), 20X5 budget(in '000s)
| Variable manufacturing costs | |
| Electricity | $2,282 |
| Fuel | 1,317 |
| Inspection | 527 |
| Repair & Maintenance | 3,072 |
| Rework & Wastage | 1,580 |
| Total variable overhead costs | $8,778 |
| Fixed manufacturing overhaed | |
| Depreciation | 4,696 |
| Property taxes and Insurance | 109 |
| Supervisory salaries | 273 |
| Utilities | 382 |
| Total fixed manufacturing costs | 5,460 |
| Total manufacturing overhead costs | 14,238 |
Note; The rates for both variable and fixed overhead are based on production of 1,097,000 pairs.
Exhibit 2:
Date August 20, 20X4
To : President
From : Marketing manager
Re: Design of the hiking boot
I have included the following detials of the design and proposed costs for the hiking boot.
Costs;After consulting with the purchasing staff, the following table of costs has been compiled listing the requirement times to manufacture and finish the boot.
| The Hiking Boot | ||||
| Budgeted cost per pair | ||||
| Qty | Measure | Cost per | Total cost | |
| Direct material | ||||
| Leather | 0.50 | Square meter | $21.00 | $10.5000 |
| Nylon | 0.50 | Square meter | $5.00 | 2.5000 |
| Other lining | 0.45 | Square meter | $8.50 | 3.8250 |
| Air-Cushioned midsole | 2.00 | Each | $2.30 | 4.6000 |
| Sole | 2.00 | Each | $0.53 | 1.0600 |
| $22,4850 | ||||
| Direct Labour | ||||
| Cutting | 0.03 | Hour | $25.20 | $0.7560 |
| Stitching | 0.04 | Hour | $25.20 | 1.0080 |
| Forming | 0.06 | Hour | $25.20 | 1.5120 |
| Soling | 0.10 | Hour | $25.20 | 2.5200 |
| Finishing | 0.03 | Hour | $21.50 | 0.6450 |
| 0.26 | 6.4410 | |||
| Variable manufacturing overhead | ||||
| Vraiable overhead | 0.26 | Hour | $16.26 | 4.2800 |
| Total variable budgeted manufactuirng cost per pair of shoes | 33.2060 |
Additional inormation
| Lifetime(year) | 10 |
| Proposed selling price per pair | $50.00 |
| Variable selling and administrative costs specific to the Robie product line(per pair) | $1.50 |
| Fixed overhead cost specific to the production of the Robie | $360,000 |
| Annual market demand and budgeted sales(pairs) | 125,000 |
| Annual fixed advertising costs | $120,000 |
| Monthly leasing costs of cutting equipment | $1,500 |
| Monthly leasing costs of sewing equipment | $2,300 |
| Renovations required to implement leased equipment(Capitalized and depreciated over 10 year with no salvage value) | $672,000 |
| Cost of process design, implementation and training | $420,000 |
| Additional research and development, product design, patents and trademarks | $25,000 |
| Desired markup on costs | 20% |
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