Lititz is a small community with one major companyWinston & Company a small toy manufacturer. Two out of every three families in the town works, or has relatives who work for Winston & Company. There is great community pride in the company, and residents regularly promote the company on Social Media. The company has three main product lines, Childrens Bikes, Bike Helmets and Knee pads. Below is the 2021 Balance Sheet and Income Statement for the Company.

Childrens Bikes:

In 2021 Winston & Co. sold $5,500,000 of their specialty crafted Kids bikes. They sold 27,500 bikes and anticipate demand will grow by 5% in 2022. Many of those sales occurred on-line and they expect this trend to continue. The bikes portion of the cost use the Winston & Co. foam as part of the suspension system.

Each bike requires $50 of parts, $25 of Winston & Co. foam, $50 of labor, and $5 of variable overhead. Fixed costs per year are $650,000. The plant is not at capacity.

Bike Helmets:

In 2021 Winston & Co. sold $3,600,000 of their specially crafted Bike Helmets. They sold 144,000 helmets and not received projections for growth in 2021. The company has variety of sales channels for their helmets, including biking clubs, schools, and summer camps etc. Many of their sales occurred on-line and they expect this trend to continue.

Each helmet requires $7 of Winston Foam a patented material, $5 of labor, and $.50 of variable overhead. Fixed costs per year are $650,000. The plant is not at capacity.

Knee Pads

In 2021 Winston & Co. sold $4,125,000 of their specialty crafted Winston & Co knee pads. They sold 165,000 knee pads and have not received projections for growth in 2022. The products sales representatives indicate that a lot of their sales are linked with sales of the Winston & Co. Bike Helmets. Many of their sales occurred on-line and they expect this trend to continue.

Each knee pad requires $13 of Winston & Co foam. $6 of labor and $2 of variable overhead. Fixed costs per year are $700,000. The plant is not at capacity.

CFO Proposal:

The CFO has proposed automating the plant, which would add $300,000 of fixed costs annually allocated evenly among the products. This change will reduce labor costs by $10 per unit, $1 per unit and $3 for Bikes, Helmets, and Knee Pads, respectively, and will improve efficiency in materials usage by $3 per unit, $.50 per unit and $4 per unit for Bikes, Helmets and Pads, respectively.

The CFO assumes not increase in sales for any of the products in 2022.

Managements Response

For 2022, Management wants to know what the overall contribution margin is for the Company, given the current sales mix. (Assume the actual results).

Management wants to know how many bikes will need to be produced for the company to earn $4,000,000 in net income overall for the Company in 2021. (Assume the CFO proposal is adopted).

V.P. of Sales Winston & Co. Bikes Response:

If this proposal is instituted, the sales of Winston & Co. bikes will likely decline by 20% because of decreased production.

Operations Response:

The production manager suggests that the Company increase production of Winston & Co. Helmets by 20%, while maintaining the current volume of Childs Bikes production. Sales has indicated that it could sell all of the new helmets under the plan and production indicates that they have the capacity for this proposal. This proposal necessitates NOT making any proposed changes made by the CFO.

Accounting and Finance Private Warning to the CFO:

Accounting and Finance has warned the CFO that if the Company institutes the CFOs recommendations that new bike sale could decrease by 20% in addition to the 20% decrease in production of Winston & Co. helmets.

ACTUAL ACTIVITY
For Each Product	Helmets	Bikes	Knee Pads
What is the Winston & Co contribution margin per unit?
What is the Winston & Co contribution margin ratio?
What is the break-even in dollars?
What is the margin of safety in units?
What is the margin of safety in dollars?
What is the 2021 net income for the Product line?

What is the Total Net Income for the Company? ____________________________.

CFO PROPOSAL
For Each Product	Helmets	Bikes	Knee Pads
What is the Winston & Co contribution margin per unit?
What is the Winston & Co contribution margin ratio?
What is the break-even point in units?
What is the break-even in dollars?
What is the margin of safety in units?
What is the margin of safety in dollars?
What is the 2021 net income for the Product line?

What is the Total Net Income for the Company? ______________________.

** Evaluate the CFOs Proposal

Managements Response:

Assume the Actual Results

For 2021, Management wants to know what the overall contribution margin is for the Company, given the current sales mix. _____________.

Assume the use of the CFO Proposal.

Management wants to know how many bikes will need to be produced for the company to earn $4,000,000 in net income overall for the Company in 2022. _____________________.

V.P. of Sales Winston & Company Bikes Response:

If this proposal is instituted, the sales of Winston & Co. bikes will likely decrease by 20% as a result of decreased production.

CFO PROPOSAL V.P. Sales Bikes Response
For Each Product	Helmets	Bikes	Knee Pads
What is the Winston & Co contribution margin per unit?
What is the Winston & Co contribution margin ratio?
What is the break-even point in units?
What is the break-even in dollars?
What is the margin of safety in units?
What is the margin of safety in dollars?
What is the 2021 net income for the Product line?

Operations Response:

The production manager suggests that the Company increase production of Winston & Co. helmets by 20% while maintaining the current volume of Winston & Co. Bike Production. Sales has indicated that it could sell all of the new helmets under the plan and production indicates that they have the capacity for this proposal. This proposal necessitates NOT making any of the proposed changes made by the CFO.

CFO PROPOSAL Operations Response
For Each Product	Helmets:	Bikes:	Knee Pads:
What is the Winston & Co contribution margin per unit?
What is the Winston & Co contribution margin ratio?
What is the break-even point in units?
What is the break-even in dollars?
What is the margin of safety in units?
What is the margin of safety in dollars?
What is the 2021 net income for the Product line?

Accounting and Finance Private Warning to the CFO:

Accounting and Finance has warned the CFO that if the Company institutes the CFOs recommendations that the new bike sales could decrease by 20% in addition to the 20% decrease in production of Winston & Co. helmets?

CFO PROPOSAL ACCT / FIN Response
For Each Product	Helmets:	Bikes:	Knee Pads:
What is the Winston & Co contribution margin per unit?
What is the Winston & Co contribution margin ratio?
What is the break-even point in units?
What is the break-even in dollars?
What is the margin of safety in units?
What is the margin of safety in dollars?
What is the 2021 net income for the Product line?

LIABILITIES \& EQUITY: Income Statement Winston \& Company For the Year Ending December 31,2021 Sales Revenue $13,225,000 Cost of Goods Sold: Materials Labor Overhead Total COGS: Gross Profit: Support Costs: Administration Accounting Housekeeping Purchasing $5,215,500 $3,085,000 $539,500 $8,840,000 $4,385,000 Total Support Costs: \begin{tabular}{l} $800,000 \\ $400,000 \\ $250,000 \\ $550,000 \\ \hline \end{tabular} Net Income $2,000,000 $2.385.000