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BC Mountain Boots Ltd. is thinking of making a specialty hiking boot for children. The...

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Accounting

BC Mountain Boots Ltd. is thinking of making a specialty hiking boot for children. The initial research has determined that the boot could sell for $175. Fixed manufacturing overhead is

$136,750 per month. Fixed selling costs are $25,200 per month. Variable costs to manufacture are estimated as follows:

Direct materials -$17.50

Direct labour -5.16

Manufacturing overhead- 1.21

Variable selling cost is estimated at 3.5% of sales.

Required:

a) Calculate the break-even point in units and in dollars. 4 marks

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 50%. 3 marks

ii)Fixed manufacturing overhead costs increased by 15% and variable manufacturing costs increased by 60%, except for direct materials, which doubled in price due to a problem with importing leather. Variable selling cost increased to 4% of sales. 3 marks

iii)The estimated selling price was overestimated, and the actual price is $120. 3 marks

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 2,500 units per month? 2 marks

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