Problem 1

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. Compute the break-even point of the sleeping bag in units sold.

b. What would be the total revenue at the break-even point?

c. How many units would Ontario need to sell to earn a profit of $21,000?

d. 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