Company manufactures high-end sunglasses that it sells to mail-order distributor
ID: 2779562 • Letter: C
Question
Company manufactures high-end sunglasses that it sells to mail-order distributors for $50. Manufacturing and other costs follow:
Variable Costs per Unit
Direct materials ......... $ 8
Direct labor............. 7
Factory overhead ....... 2
Distribution ............. 3
Total .................. $20
Fixed Costs per Month
Factory overhead .......... $20,000
Selling and administrative ... 10,000
Total .................... $30,000
The variable distribution costs are for transportation to mail-order distributors. The current monthly production and sales volume is 5,000 units. Monthly capacity is 6,000 units.
Determine the effect of each of the following independent situations on monthly profits.
a. A $2.00 increase in the unit selling price should result in a 1,200-unit decrease in monthly sales.
b. A 15% decrease in the unit selling price should result in a 2,000-unit increase in monthly
sales. However, because of capacity constraints, the last 1,000 units would be produced during
overtime with the direct labor costs increasing by 60 percent.
c. A British distributor has proposed to place a special, one-time order for 1,000 units at a
reduced price of $45 per unit. The distributor would pay all transportation costs. There would
be additional fixed selling and administrative costs of $1,000.
d. A Swiss distributor has proposed to place a special, one-time order for 2,500 units at a special
price of $45 per unit. The distributor would pay all transportation costs. There would be
additional fixed selling and administrative costs of $1,500. Assume overtime production is not
possible.
e. Nantucket Optics provides a designer case for each pair of sunglasses that it manufactures. A
Chinese manufacturer has offered a one-year contract to supply the cases at a cost of $4 per unit. If Nantucket Optics accepts the offer, it will be able to reduce variable manufacturing costs by 10%, reduce fixed costs by $1,500, and rent out some freed-up space for $2,000 per month.
f. The glasses also come with four different color inserts that allow the user to change the appearance of the glasses to match her or his clothing. Making the glasses in only one color without the color inserts would reduce the cost by $5, and Nantucket Optics believes the selling price would have to decrease to $45.
Can you please show work or say what formula was used along with the bold answer. Thank you so much.
Explanation / Answer
A Sales price per unit 52 Units sold 3800 Sales Value 197600 Variable Cost -76000 Contribution 121600 Factory Overhead -20000 Selling Overhead -10000 Profit 91600 B Sales price per unit 42.5 Units sold 7000 Sales Value 297500 Variable Cost (6000*20) -100000 Additional Production (1000*(20+4.2)) -24200 Contribution 173300 Factory Overhead -20000 Selling Overhead -10000 Profit 143300 C Sales price per unit 50 Units sold 5000 Special Price 45 Additional units sold 1000 Sales Value 295000 Variable Cost (6000*17) -120983 Contribution 174017 Factory Overhead -20000 Selling Overhead -11000 Profit 143017 D Sales price per unit 50 Units sold 4500 Special Price 45 Additional units sold 2500 Sales Value 337500 Variable Cost (6000*17) -92483 Contribution 245017 Factory Overhead -20000 Selling Overhead -11500 Profit 213517 E Sales price per unit 50 Units sold 5000 Sales Value 250000 Variable Cost (5000*20)*.9 90000 Contribution 160000 Factory Overhead -18500 Selling Overhead -10000 Profit 131500 rent from free space 2000 Total profit 133500 F Sales price per unit 45 Units sold 5000 Sales Value 225000 Variable Cost (5000*15) -75000 Contribution 150000 Factory Overhead -20000 Selling Overhead -10000 Profit 120000
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