Exercise 20-17 (Part Level Submission) Twyla Company operates a small factory in
ID: 2444649 • Letter: E
Question
Exercise 20-17 (Part Level Submission) Twyla Company operates a small factory in which it manufactures two products: C and D. Production and sales results for last year were as follows.
For purposes of simplicity, the firm averages total fixed costs over the total number of units of C and D produced and sold.
The research department has developed a new product (E) as a replacement for product D. Market studies show that Twyla Company could sell 11,900 units of E next year at a price of $114; the variable cost per unit of E is $40. The introduction of product E will lead to a 11% increase in demand for product C and discontinuation of product D. If the company does not introduce the new product, it expects next year’s results to be the same as last year’s.
Compute company profit with products C & D and with products C & E.
Explanation / Answer
Twyla Company All amounts in $ Net Income Statement Product C & D Product C Product D Details Amt /Unit Total qty/Amt Amt /Unit Total qty/Amt Units Sold 8,900 19,640 Selling Price/Unit 96 76 Sales Revenue 854,400 1,492,640 Less Variable cost 49.00 436,100 41 805,240 Less Fixed Cost 25.00 222,500 25 491,000 Net Income 195,800 196,400 Net profit from C&D = $ 392,200.00 Net Income Statement Product C & E Product C Product E Units Sold 9,879 11,900 Selling Price/Unit 96.00 948,384 114 1,356,600 Sales Revenue Less Variable cost 49.00 484,071 40 476,000 Less Fixed Cost 222,500 491,000 Net Income 241,813 389,600 Net profit from C&E= $ 631,413.00 Net profit from C&D = $ 392,200.00 Net profit from C&E= $ 631,413.00
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