Congratulations! You have been hired as a Cost Accountant by Sundial, Inc., which produces sunglasses. Your duties include developing cost standards for materials and labor, designing and implementing cost accounting systems, defining various product and operational costs, analyzing production costs and recommending changes. When the trial period is over, you will have a performance review to demonstrate the completed tasks and gained knowledge. There are two models of sunglasses in Sundial’s assortment — Essenz and CoolBe. The sunglasses have the following characteristics: Essenz CoolBe Selling price per unit $160 $160 Variable cost per unit $60 $80 Expected units sold per year 60,000 40,000 The total fixed costs per year for the company are $2,208,000. What is the anticipated level of profits for the expected sales volumes? Assuming that the product mix is the same at the break-even point, compute the break-even point. If the product sales mix were to change to four pairs of Essenz sunglasses for each pair of CoolBe sunglasses, what would be the new break-even volume for Sundial, Inc.? How can Sundial, Inc. boost its profits by costs cutting or increase in sales? Provide at least three recommendations that you consider the most important.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 39P: Randy Harris, controller, has been given the charge to implement an advanced cost management system....

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Congratulations! You have been hired as a Cost Accountant by Sundial, Inc., which produces sunglasses. Your duties include developing cost standards for materials and labor, designing and implementing cost accounting systems, defining various product and operational costs, analyzing production costs and recommending changes. When the trial period is over, you will have a performance review to demonstrate the completed tasks and gained knowledge.

There are two models of sunglasses in Sundial’s assortment — Essenz and CoolBe. The sunglasses have the following characteristics:

	Essenz	CoolBe
Selling price per unit	$160	$160
Variable cost per unit	$60	$80
Expected units sold per year	60,000	40,000

The total fixed costs per year for the company are $2,208,000.

What is the anticipated level of profits for the expected sales volumes?
Assuming that the product mix is the same at the break-even point, compute the break-even point.
If the product sales mix were to change to four pairs of Essenz sunglasses for each pair of CoolBe sunglasses, what would be the new break-even volume for Sundial, Inc.?
How can Sundial, Inc. boost its profits by costs cutting or increase in sales? Provide at least three recommendations that you consider the most important.

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