Northern Apparel Inc. is thinking of making a specialty parka for children. The initial research has determined that the parka could sell for $195. Fixed manufacturing overhead is $140,000 per month. Fixed selling costs are $31,000 per month. Variable costs to manufacture are estimated as follows: Direct materials Direct labour Manufacturing overhead $18.50 6.15 1.20 Variable selling cost is estimated at 3.5% of sales. Required: a) Calculate the break-even point in units and in dollars. b) Calculate the new break-even point in units and sales dollars for each of the following independent situations: i. Variable manufacturing costs increased by 40%. ii. Fixed manufacturing overhead costs increased by 25% and variable manufacturing costs increased by 50% , except for direct materials, which doubled in price due to a problem with importing leather. Variable selling cost increased to 4% of sales. iii. The estimated selling price was overestimated, and the actual price is $150. c) Using the revised estimates from part (b) (iii) as the best estimate, what is the margin of safety percentage if the company thinks it will sell 2,000 units per month?
Northern Apparel Inc. is thinking of making a specialty parka for children. The initial research has determined that the parka could sell for $195. Fixed manufacturing overhead is $140,000 per month. Fixed selling costs are $31,000 per month. Variable costs to manufacture are estimated as follows: Direct materials Direct labour Manufacturing overhead $18.50 6.15 1.20 Variable selling cost is estimated at 3.5% of sales. Required: a) Calculate the break-even point in units and in dollars. b) Calculate the new break-even point in units and sales dollars for each of the following independent situations: i. Variable manufacturing costs increased by 40%. ii. Fixed manufacturing overhead costs increased by 25% and variable manufacturing costs increased by 50% , except for direct materials, which doubled in price due to a problem with importing leather. Variable selling cost increased to 4% of sales. iii. The estimated selling price was overestimated, and the actual price is $150. c) Using the revised estimates from part (b) (iii) as the best estimate, what is the margin of safety percentage if the company thinks it will sell 2,000 units per month?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Northern Apparel Inc. is thinking of making a specialty parka for children. The initial
research has determined that the parka could sell for $195. Fixed manufacturing
overhead is $140,000 per month. Fixed selling costs are $31,000 per month. Variable
costs to manufacture are estimated as follows:
Direct materials
Direct labour
Manufacturing overhead
$18.50
6.15
1.20
Variable selling cost is estimated at 3.5% of sales.
Required:
a) Calculate the break-even point in units and in dollars.
b) Calculate the new break-even point in units and sales dollars for each of the
following independent situations:
i. Variable manufacturing costs increased by 40%.
ii. Fixed manufacturing overhead costs increased by 25% and variable
manufacturing costs increased by 50%, except for direct materials, which
doubled in price due to a problem with importing leather. Variable selling cost
increased to 4% of sales.
iii. The estimated selling price was overestimated, and the actual price is $150.
c) Using the revised estimates from part (b) (iii) as the best estimate, what is the
margin of safety percentage if the company thinks it will sell 2,000 units per month?
d) The management accountant wants to provide the production department with
relevant information for decision-making in relation to the production of this parka.
Two of the key decision makers are the assembly supervisor and the vice-president
of production. Contrast the information needs of each of these individuals as they
relate to the following:
i. decision type
ii. information format
iii. information source
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