Omega Manufacturing Inc.

Scenario: Production Cost Analysis

Product Details:

• Product X:
  • Selling Price per Unit: $80
  • Variable Cost per Unit: $50
  • Fixed Costs: $200,000

• Product Y:
  • Selling Price per Unit: $100
  • Variable Cost per Unit: $60
  • Fixed Costs: $250,000

Requirements:

1. Contribution Margin Analysis:
   • Calculate the contribution margin per unit and contribution margin ratio for Product X and Product Y at Omega Manufacturing Inc. Explain how these metrics influence decision-making in production planning.

1. Break-Even and Cost-Volume-Profit (CVP) Analysis:
   • Perform a break-even analysis for Omega Manufacturing Inc., considering both products together. Determine the total sales revenue required to achieve break-even and discuss the implications for profitability.

1. Impact of Volume Changes:
   • Analyze how a 20% increase in production volume for Product X would affect the company's overall profitability. Include calculations of new contribution margin and net income projections.

1. Strategic Pricing Decision:
   • Recommend a pricing strategy for Product Y if the company wants to increase its profit margin by 15%. Justify your recommendation based on the contribution margin analysis and market conditions.

1. Scenario Analysis:
   • Consider a scenario where fixed costs increase by 10%. Evaluate the impact on the break-even point and profitability for both products. Provide insights into how the company should respond strategically.