Question

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Part 2 contains 3 Decision making recommendations that are independent of each other. Covers material in Module 17
Glass company manufactures glasses that it sells to mail-order distributors.
Sales price per pair of glasses:	$62
Manufacturing and other costs follow:
Variable Cost per unit
Direct Materials	$13
Direct labor	12
Factory overhead	2
Distribution	3
Total Variable costs	$30
Fixed costs per month
Factory overhead	$20,000
Selling and Administrative	10,000
Total Fixed costs	$30,000
Current monthly production and sales volume		6,000	units
Monthly capacity		7000	units
Additional information: The variable distribution costs are for transportation to mail-order distributors.
Required: Determine the effect of each of the following 3 independent situations on monthly profits.
Make sure you show your computations to provide the monthly change in income and give a recommendation to management if they should accept the change.
#1 A $3 increase in the unit selling price should result in a 1,000-unit decrease in monthly sales
#2 A 10% 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 40%.
#3 a British distributor has proposed to place a special one-time order for 1,000 units at a reduced price of $57 per unit. The distributor would pay all transportation costs, so there are no variable distribution costs. There would be additional fixed selling and administrative costs of $1,000.
Solution:
#1
#2
#3

Answer 1

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Decision making 8000 55.8 700D 62 857 #1 #2 #3 Sale of units 5000 sale price of a 65 (62-102.) CAOB Sales Normal sales 325000 496400 372000 Special sale to Betish (5000x65) (Coooxss.) Gooo X62) S2000 1000 X 5 Total sales - 325000 446,400 429000 Variable cost Disseck material 65000 104000 91000 (5000x13) (8000X 13(7006X13) tooloo Direct labour 60000 84000 So00x12(7000X12) (2000x12) 5+2 +612X407) +(1000x168) Factory Overhead 10000 16008 | 14000 (5000x2) (B000x2) 1000x2) Distribution 15000 24000 [ Sooox3) (8000x3) Total variable cost® 150000 244800 189000 Fixed Costs Factory Overhead Selling & admin Total kox cost -> © Net profit CA-B-C) 20000 20000 10000 10000 30000 30000 145000 171600 20000 11000 seco 209000

Conclusion as As per above working a Net profit" is highest in #3 which lije $909000 Thus it is better to go with #3