a) | |||||
Total Number of | |||||
Percent of total | Dresses | Accessory Capes | Handbags | Total | |
Complete sets | 70% | 1,050 | 1,050 | 1,050 | |
Dress and accessory cape | 6% | 90 | 90 | ||
Dress and handbag | 15% | 225 | 225 | ||
Dress only | 9% | 135 | |||
Total units if additional items are introduced | 100% | 1,500 | 1,140 | 1,275 | |
Less: Unit sales if additional items are not introduced | 1250 | ||||
Incremental sales | 250 | 1,140 | 1,275 | ||
Incremental contribution margin per unit (excluding material and cutting costs) | $ 120.00 | $ 8.00 | $ 3.00 | ||
Total incremental contribution margin | $30,000 | $9,120 | $3,825 | $42,945 | |
Additional costs: | |||||
Additional cutting cost(1,500 X 91% X $9) | $ 12,285.00 | ||||
Additional material cost (250 x $50.00) | $ 12,500.00 | ||||
Lost remnant sales (1250 -135) x $5 | $ 5,575.00 | ||||
Incremental cutting for extra dresses (250 x $20.00) | $ 5,000.00 | $ 35,360.00 | |||
Incremental profit | $7,585.00 | ||||
b) La mode inc. should manufactures the capes and handbags with the dresses because its profit will increase. | |||||
c) | |||||
Qualitative factors that could influence the company’s management team in its decision to manufacture matching accessory capes and handbags include: | |||||
1) accuracy of forecasted increase in dress sales. | |||||
2) accuracy of forecasted product mix. | |||||
3)company image of a dress manufacturer versus a more extensive supplier of women’s apparel. | |||||
4) competition from other manufacturers of women’s apparel. | |||||
5) whether there is adequate capacity (labor, facilities, storage, etc.). |
La Mode Design Inc., a high-fashion women's dress manufacturer, is planning to market a new cocktail...
La Mode Design Inc., a high-fashion women's dress manufacturer, is planning to market a new cocktail dress for the coming season. La Mode Design supplies retailers in Toronto, Montreal, and the Atlantic provinces. Four metres of material are laid out for the dress pattern. After cutting, some material remains, which can be sold as remnants. The company could also use the leftover material to manufacture a matching cape and handbag. However, if it uses the leftover material for the cape...