Birthday Gems (BG) makes plush toys that are popular birthday gifts. The following table provides information on the three products BG produces and expected sales level for the upcoming year:

The BG accountant has provided you with the following information about fixed costs:

Required 

(a) Prepare an income statement that shows the income for each of the three products and a total for the entire organization. 

(b) If the sales mix remains constant as total sales increase or decrease, compute the sales of each product required so that total BG income is zero. 

(c) Matt Reasoner has grown tired of the losses reported by the Bear product and wants to eliminate it. The marketing manager has objected, saying that, because the three products are sometimes sold as a package, sales of the Rabbit and Deer products will fall by 2% if the Bear product is eliminated. What is the effect on BG’s total income if the Bear product is dropped? 

(d) BG believes that it can achieve all planned levels of unit sales for the three products. Recently, an existing customer approached BG with a proposal for a new product. The new product would begin with the existing completed Rabbit product and then add clothing items with a variable cost of $5. The new product will require an additional 0.2 hours of machining time. Machining time is constrained at BG. The following is a table of the machine hours consumed by each product. The planned production plan uses all 86,500 hours of machine time that are available in the upcoming period.  

 

What is the minimum price that BG should charge for the first unit of this proposed product? 

(e) The marketing manager at BG has developed the following exhibit summarizing potential unit sales in the upcoming period:

The minimum sales are previously contracted sales that must be met. Maximum sales includes the minimum contracted sales. Given this information and the machine capacity constraint, what is the optimal production plan in the upcoming period?

Transcribed Image Text:

Per-Unit Information Selling price Variable cost.. Contribution margin Planned unit sales RABBIT $55.00 43.00 $12.00 90,000 DEER $66.00 55.00 $11.00 60,000 BEAR $84.00 76.00 $ 8.00 50,000