Problem Set 2 The Carishoe Company is involved in the manufacturing and sale of its leather Shoe. Carishoe's interaction of costs and production capacity prompts in analysis that will guide it in navigating the balance between revenue generation and cost management. As you analyse Carisha's scario, critical financial data emerges blaying the foundation for strategic decision-making The Carshoe Company produces its Shoes that sells for $210 per pair. Operating income for 2024 is as follows: Sales revenue ($210 per pair) Variable cost (590 per pair) Contribution margin Fixed cost $1,050,000 450,000 600.000 300X Operating income $300,000 Carishce Company would like to increase its profitability over the next year by at least 25%. To do so, the company is considering the following options: 1. Add a second manufacturing facility that would double Crishoe's fixed costs but would increase sales by 40%. 2. Spend $75,000 on a new advertising campaign, which would increase sales by 10%. 3. Increase both selling peice by $30 per unit and variable costs by $24 per unit by using a higher-quality leather material in the production of its shoes. The higher-priced shoe would cause demand to drop by approximately 20%. 4. Replace a portion of its variable labour with an automated machining process. This would result in a 20% decrease in variable cost per unit but a 15% increase in fixed cod. Salex would remain the same. Required 1. Calculate the existing (2024) unit sales and breakeven point? (10 Marks) 2. What is the operating income for the alternatives considered by Carishoe? (20 Marks) 3. Evaluate each of the options indicating whether they meet or exceed Carishoe's targeted increase in income of 25%? What should Crishce do? (20 Marks) 4. By reference to the above data: How can a company effectively use CPV (Cost-Volume-Profit) analysis to make strategic decisions about its profitability? (10 Marks) Q ▼ 0 1 / 3 Тт з Problem Set 1 Cariman Company manufactures and sells three styles of door Handles: Gold, Bronze and Silver Production takes 50, 50, and 20 machine hours to manufacture 1,000-unit batches of Gold, Brune, and Silver Handles, respectively. The following additional data apply: Projected sales in units Gold Bronze Silver 60,000 100,000 80,000 Per Unit data: Selling price $80 540 560 Direct materials $16 $8 $16 Direct labour $30 $5 518 Overhead cost based on direct labour hours (traditional system) $24 56 $18 Hours per 1,000-unit butch: Direct labour hours Machine hours Setup hours Inspection hours 80 50 20 60 20 # 5 8 8 40 40 20 50 20 8558 Activity Total overhead costs and activity levels for the year are estimated as follows: Overhead costs Activity levels Direct labour hours 5,800 hours Machine hours 4,800 hours Setups $931,000 190 setup hours Inspections $810,000 5,400 inspection hours $1741.000 Required: 1. Using the traditional coding system, determine the operating profit per unit for the Gold style of Handle! (5 Marks) 2. Determine the activity cost driver rate for setup costs and inspection costs? (5 Marks) 3. Using the ABC system, for the Gold style of Handle: a. Calculate the estimated overhead costs per unit? (10 Marks) b. Calculate the estimated operating profit per unit? (10 Marks) 4. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? (10 Marks) 5 ¢