Question
Italian ski-boot manufacturer Dalbello has hired you as a consultant to perform cost-volume-profit analysis. They would like you to build a CVP analysis tool
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Italian ski-boot manufacturer Dalbello has hired you as a consultant to perform cost-volume-profit analysis. They would like you to build a CVP analysis tool to help their managerial accountant project the results of investment, marketing and pricing decisions. Dalbello produces two lines of ski boots, one for recreational skiers (Blue Line) and one for advanced skiers (Black Line). Financial information is as follows: 2017 Results Blue Line Black Line Product mix 75% 25% Selling Price $160 $320 DM Variable Cost / Unit DL Variable Cost / Unit Factory Rent and Overhead SG&A Costs R&D Costs $35 $50 $35 $40 $14,000,000 Production Equipment Depreciation $5,500,000 $7,000,000 $1,220,000 Note that factory rent, SG&A costs, R&D costs and equipment depreciation cannot be split between the product lines and are fixed. For simplicity, assume that there are no variable manufacturing overhead costs, no variable non-manufacturing costs and no inventory. Scenarios to Analyze: A) Base Scenario: Calculate the following using the existing product mix, prices and costs. 1. The weighted average contribution margin per unit 2. Breakeven in units: Blue Line Black Line 3. The total number of units needed to earn $500,000 operating income. Blue Line Black Line B) Investment Scenario: Calculate the following using the existing product mix, prices, but with an investment in new equipment. Assume a total volume of 300,000 units. The new equipment will result in higher fixed costs (equipment depreciation increases by $1,200,000) and lower variable costs (decreased DL variable cost by $9 for the Blue Line, i.e., $35 becomes $26; and decreased DL variable cost by $9 for the Black Line, i.e., $40 becomes $31) 4. Total Contribution Margin Total Operating Income 5. Operating Leverage (keep two decimal digits)
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