Scenario (120 minutes) Sweet Dreams Ltd. (SDL) manufactures baby cribs and sells them to retail stores across Canada. SDL manufactures three different models in a single factory in Winnipeg, Manitoba. The models are distinguished by the quality of materials used and the sophistication of the design. The cribs vary in price; the Modern model is the most basic and cheapest, the Classic is a mid-price-point product, and the Wonder is the most expensive model. Quality control is critical for SDL, as it must meet the strict safety requirements for baby cribs in Canada. SDL prides itself on not just meeting but exceeding the minimum requirements. Industry surveys have shown that safety is the most important factor for parents when buying a crib. In addition to product quality, SDL has a strong reputation for excellent customer service and timely delivery. You, CPA, work for a consulting firm, Martin & Donaldson LLP. You are meeting with Michelle Lam, the controller of SDL. Michelle asks you to help her with a number of items in preparation for an upcoming board of directors meeting. Michelle informs you that sales have grown to the point where SDL is now operating at capacity and is struggling to meet demand. Michelle provides you with the following statement of income by product line for the previous fiscal year ended December 31. The average selling prices were $300, $460, and $650 for the Modern, Classic, and Wonder models, respectively.

Modern Classic Wonder Total Sales $18,987,000 $19,425,800 $20,475,000 $58,887,800 Direct material 5,715,000 6,518,000 6,575,000 18,808,000 Direct labour 3,430,000 4,063,000 4,705,000 12, 198,000 Variable MOH 3,112,000 2,667,000 2,240,000 8,019,000 Fixed MOH* 205,800 243,780 282,300 731,880 Fixed selling and 1,139,220 1, 165,548 1,228,500 3,533,268 administrative** Fixed MOH is allocated based on direct labour costs. * * Fixed selling and administrative is allocated based on sales.Modern Classic Wonder MH per unit 0.80 1.20 1.30 The marketing team has provided the following summary of forecasted demand and sales commitments for the upcoming year: Modern Classic Wonder Forecasted demand 67,000 46,000 38,000 Sales commitments 50,000 40,000 25,000Michelle has provided you with the per-unit costs for the current finishing process: Direct materials $14.00 Direct labour 12.50 Variable MOH 6.00 Fixed MOH* 5.00 Quality inspection 1.50 * Fixed MOH includes building amortization, insurance, and property taxes.