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Ontario Outdoors is a manufacturer of outdoor items. The company is considering the possibility of offering a new sleeping bag that would sell for $150 each. Cost to manufacture these sleeping bags includes $40 in materials and $35 in direct labor for each sleeping bag. Variable marketing and selling costs would be $15 each. In order to manufacture these sleeping bags, the company would need to incur $120,000 in fixed costs for new equipment.

ACT 5140 - Accounting For Decision Makers Week #2 - HW Assignment You MUST show all work in order to receive credit for the problems. Problem 1 Saul Inc. Income Statement For the Year Ended December 31, 2014 Sales Revenue Cost of goods sold Gross Profit Operating Expenses: Selling Administrative $125,000 (52,000) 73,000 30,000 25,000 Total Operating Expenses Income Before Tax Income Taxes (30%) Net Income After Tax (55,000) 18,000 (5,400) 12,600 They sold 12,500 units during 2014. Cost of goods sold is 100% variable. Selling expenses are 60% variable and administrative expenses are 20% variable. Required: 1. Calculate the break-even point in units. 2. Calculate the break-even point in sales. 3. Assume they want to earn a profit of $40,000 after tax in 2015. How many units would they have to sell to achieve their goal? 4. Assume that in 2015 they plan to increase their selling price by 10%. How many units would they have to sell to break-even? 5. Calculate the current margin of safety in dollars. Problem 2 Ontario Outdoors is a manufacturer of outdoor items. The company is considering the possibility of offering a new sleeping bag that would sell for $150 each. Cost to manufacture these sleeping bags includes $40 in materials and $35 in direct labor for each sleeping bag. Variable marketing and selling costs would be $15 each. In order to manufacture these sleeping bags, the company would need to incur $120,000 in fixed costs for new equipment. Required: a. b. c. d. Compute the break-even point of the sleeping bag in units sold. What would be the total revenue at the break-even point? How many units would Ontario need to sell to earn a profit of $21,000? If fixed costs in fact are $150,000 rather than $120,000, how many units would need to be sold in order to earn $21,000? Problem 3 Kathy's Radio Company currently produces the speakers for the radios it manufactures. The company uses 15,000 speakers per year. Assume that Kathy's has determined that it can purchase the speakers from Bob's Speaker Company for $2.00 each. Kathy's cost of producing the speakers is as follows: Cost of producing 15,000 speakers: Direct Materials $11,100 Direct Labor 9,600 Variable Overhead 3,750 Fixed Overhead 6,900 Total $31,350 Assume fixed costs for Kathy's would be unchanged if they stopped making the speakers. Required: 1. Should Kathy's Radio Company continue making the speakers rather than buying them? Would they be better or worse off and by what amount? 2. Using the same facts, assume that they if they purchased the speakers they can rent the facilities to someone else for $9,000 a year. Should they continue making the speakers or should they buy them? Would they be better or worse off and by what amount? Problem 4 Gleeson manufactures a single product with the following full unit costs for 6,000 units: Direct materials Direct labor Variable Manufacturing overhead Fixed Manufacturing overhead Selling expenses Total per unit $200 120 144 96 40 $600 A company recently approached Gleeson with a special order to purchase 1,000 units for $550. Gleeson currently sells the models to dealers for $1,100. Capacity is sufficient to produce the extra 1,000 units. No selling expenses would be incurred on the special order. Required: 1. Ignoring the special order, determine Gleeson's profit on production and sales 6,000 units. Ignore taxes in these analyses. 2. Should Gleeson accept the special order if its goal is to maximize short-run profits? Determine the impact on profit of accepting the order