Hawk Hill manufactures and sells skateboards. When operating at capacity of 30,0

Question

Hawk Hill manufactures and sells skateboards. When operating at capacity of 30,000 skate boards, they have costs as noted below: Currently they only expect to sell 25,000 units this year. A large retail chain has expressed interest in purchasing 5,000 skateboards. There would be so sales commissions on the order, so variable selling costs would be reduced by 75%. However, Hawk Hill would have to purchase a special license to engrave a university mascot on each of the units. This license would cost $ 10,000 and Hawk has no assurance that it could be used in the future. If Hawf Hill accepts the order, they would like to increase their operating profit by at least $10,000. To achieve the $ 10,000 improvement, what would be the minimum sales price per unit they could offer to their potential customer? ______

Explanation / Answer

In accepting this offer, they will reduce variable selling costs by 75% or from $4/unit to $1/unit. This offer also increases fixed selling and administrative expenses to $190,000 (by $10,000). Total costs will change in the following way: 1,350,000-(4*30,000)+(1*30,000)+10,000 = 1,270,000 Unit costs would be: 1,270,000 / 30,000 = $42.33/unit They want to increase the operating profit by at least $10,000. 30,000(x-42.33) = 10,000 x - $42.33 = 1/3 x = $42.67 to get $10,000 in profit The question isn't the clearest that it can be though for the answer.

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