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 38,000 additional Ear Bling headphones could be sold. The income from operations by unit of product is as follows:
|
1 |
Sun Sound Headphones |
Ear Bling Headphones |
|
|
2 |
Sales price |
$135.00 |
$150.00 |
|
3 |
Variable cost of goods sold |
76.40 |
65.00 |
|
4 |
Manufacturing margin |
$58.60 |
$85.00 |
|
5 |
Variable selling and administrative expenses |
25.00 |
24.00 |
|
6 |
Contribution margin |
$33.60 |
$61.00 |
|
7 |
Fixed manufacturing costs |
12.00 |
11.50 |
|
8 |
Income from operations |
$21.60 |
$49.50 |
Prepare an analysis indicating the increase or decrease in total profitability if 20,000 additional Sun Sound and 38,000 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.
Incremental analysis
| Sun Sound Headphones | Ear Bling Headphones | |
| Sales | 2700000 | 5700000 |
| Variable manufacturing cost | -1528000 | -2470000 |
| Variable selling and administrative expenses | -500000 | -912000 |
| Incremental profit | 672000 | 2318000 |
Total profit increase by (672000+2318000) = $2990000
Head Pops Inc. manufactures two models of solar-powered, noise-canceling headphones: Sun Sound and Ear Bling models....
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