Head Pops Inc. manufactures two models of solar powered noise-canceling headphon
ID: 2420855 • Letter: H
Question
Head Pops Inc. manufactures two models of solar powered noise-canceling headphones: Sun Sound and Ear Bling models. The company is operating at less than full capacity. Market research indicates that 20,000 additional Sun Sound and 40,000 additional Ear Bling headphones could be sold. The income from operations by unit of product is as follows:
1
Sun Sound Headphone
Ear Bling Headphone
2
Sales price
$155.00
$135.00
3
Variable cost of goods sold
74.40
55.00
4
Manufacturing margin
$80.60
$80.00
5
Variable selling and administrative expenses
24.00
26.00
6
Contribution margin
$56.60
$54.00
7
Fixed manufacturing costs
18.00
12.00
8
Income from operations
$38.60
$42.00
Prepare an analysis indicating the increase or decrease in total profitability if 20,000 additional Sun Sound and 40,000 additional Ear Bling headphones are produced and sold, assuming that there is sufficient capacity for the additional production. Round your per-unit answers to two decimal places.
(increase profitability,total income from operation, $ $
decrease in profitability)
1
Sun Sound Headphone
Ear Bling Headphone
2
Sales price
$155.00
$135.00
3
Variable cost of goods sold
74.40
55.00
4
Manufacturing margin
$80.60
$80.00
5
Variable selling and administrative expenses
24.00
26.00
6
Contribution margin
$56.60
$54.00
7
Fixed manufacturing costs
18.00
12.00
8
Income from operations
$38.60
$42.00
Explanation / Answer
Sun Sound Headphone Ear Bling Headphone No of units sold 20000 40000 Sales price 155 135 Variable cost of goods sold 74.4 55 Manufacturing margin 80.6 80 Variable selling and administrative expenses 24 26 Contribution margin 56.6 54 total contribution 1132000 2160000 Less:fixed cost 360000 480000 Income from operations 772000 1680000
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