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FreshWind Ltd.(FW)is a kitchen fan manufacturer. The company had been successful in the past years due to its lean product strategy that is, they only manufacture when there is an order placed for their product. As a result no finished goods inventory is held for sale. They only manufacture three models, and the production process is similar for all three models before the assembling point. Eco model is the cheapest and sold mainly to contractors; the standard model is the most popular to end-users; and the luxe model uses a higher grade of stainless steels that are usually purchased by luxury homeowners. FW had experienced a sales increase in 2020 because more families started to cook at home due to the pandemic. FW expects sales will likely continue to grow in 2021. FW had to hire more employees (both for office and manufacturing) during the year to accommodate the production increase. With the annual financial review meeting coming up next month, you, as the company CFO, need to prepare the budget for 2021. Below are sales forecast for 2021taking into account the expected growth.

The expenses information is below. Variable costs that are directly related to the product are indicated in percentage.

Required:

1.Determine the operating profit for FreshWind. Which product line is the most profitable? (Hint: profitable is determined by CM)

2.What is the breakeven point for FrenshWind in dollars and units? How many units do they need to sell in each model? (Hint: apply weights based on units sold)

3.The company CEO also wants to see the breakeven point by each unit based on fixed costs that can be directly attributable to each product line. Out of the total Fixed Cost, $167,000 is related to Eco Model, $312,400 is related to the standard model, and $192,700 is related to the Luxe Model. The rest cannot be directly allocated. What is the breakeven point per unit? Show your answer in units and dollars.

4.According to your answer from Q3, what is the operating profit for FreshWind at the breakeven point? Compare the difference in profit between Q2 and Q3 and explain the reason that is causing the difference.

5.If you were theCEOare there any concerns regarding the product lines should sales fall short of forecast? Include calculations, if any, to support your analysis.

Sales Eco model Standard Model Luxe Model Total 22,350 In units Price 9,500 100.00 10,850 280.00 2,000 630.00 $ $ $ Eco model 21% 25% Standard Model 47% 45% Expenses: Direct labour Direct Material Fixed Manufacturer Rent Fixed Manufacturer Maintenance Fixed Manufacturer Admin Salary Fixed Office Salary Fixed Office Rent Fixed Office Supplies Variable Selling expense Luxe Model Total Cost ($) 32% 1,190,000.00 30% 2,072,000.00 230,000.00 89,000.00 127,500.00 398,000.00 70,000.00 125,000.00 44% 129,500.00 10% 46%