Question :
Exercises
130.Suez Bakery produces and sells chocolate silk pies, each having : 1302817
Exercises
130.Suez Bakery produces and sells chocolate silk pies, each having a variable cost of $3.80. Total fixed costs are $34,000. Management estimates demand at various activity levels as follows:
Units Demanded Unit Price
6,000 $10.20
7,200 9.40
8,000 8.50
8,900 8.00
10,100 7.50
a.Calculate the total contribution margin at each price level.
b.Which price maximizes profit?
131.The editor of Times Daily is considering three alternative prices for his new monthly periodical. His estimate of price and quantity demanded are:
PriceQuantity Demanded
$7.99 27,000
$6.50 36,000
$4.75 57,000
Monthly costs of producing and delivering the magazines include $100,000 of fixed costs and variable costs of $2.50 per issue. Which price will yield the largest monthly profit?
132.Kitchen Zone has come out with a new line of electric can openers that it plans to test market through a series of demonstrations at the local mall throughout the month of August. If the demonstrations result in enough sales, the program will be expanded to other malls in the region. The cost of the demonstrations is a flat fee of $2,400 to the mall owner/operator and a commission of 15% of revenue to the person giving the demonstrations. Kitchen Zone’s fixed costs of producing the can opener are $3,200 per production run. The company plans to wait for all orders to come in, and then it will produce exactly the number of units ordered (there will be no beginning or ending inventory). Variable production costs are $7 per can opener. In addition, it will cost approximately $3.50 per set to ship each can opener to customers. Based on experience with similar items, focus group responses, and survey information, estimates for unit amounts at estimated activity levels follow:
PriceQuantity
$38 400
$52 360
$66 280
a.Calculate the expected profit for each price.
b.Which price maximizes company profit?
133.WDT, Inc. is a large company that publishes ‘how-to’ books for small construction projects. WDT is considering the purchase of a new binding machine to bind the books. The variable cost of each book is estimated to be $7.40. Management has estimated demand at various prices as follows:
Unit Price Quantity
$16 720
15 850
13 830
11 900
9 930
Calculate the profit-maximizing price for the “how-to” books.
134.Budget Enterprises is considering a special order from an overseas customer for 10,000 units at a price of $40.00 per unit. The company’s product normally sells for $52.00 per unit and has variable manufacturing costs of $21.00 per unit and variable selling costs of $4.00 per unit. Fixed manufacturing costs are $500,000 and fixed selling and administrative costs are $200,000. Budget Enterprises has the capacity to produce 100,000 units and is currently producing 80,000. If Budget accepts the order, it will incur legal and accounting fees of $7,000 in connection with the order, though variable selling costs will not be incurred on the special order and it will not affect any of its other operations.
a.How much are the incremental revenues associated with the special order?
b.How much are the incremental costs associated with the special order?
c.How much additional profit or loss will be incurred if the order is accepted?
135.Canon Equipment produces a machete that it sells for $45 each. The cost of producing 20,000 machetes in the prior year was:
Direct material $220,000
Direct labor 100,000
Variable overhead 140,000
Fixed overhead 120,000
Total cost $580,000
At the start of the current year, the company received an order for 2,000 machetes from a company in South America. Management of Canon has mixed feelings about the order. On the one hand, they welcome the order because they currently have excess capacity. This is also the company’s first international order. On the other hand, the company in South America is only willing to pay $37 for each machete. What will be the effect on profit of accepting the order?
