Question

Please show all work and formulas for credit

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.

Answer 1

#1 We Should accept #1 plan we wiil get extra $2 per unit profit As per Below Satetment:-

	Current	# 1
Description	Amoutn in $	Amoutn in $
Units Sales (A)	6,000.00	5,000.00
Sales Price Per unit (B)	62.00	65.00
Total Veriable Cost Per Unit (C)	30.00	30.00
Contribution Per Unit :- D= (B-C)	32.00	35.00
Fix cost Per Month ('E)	30,000.00	30,000.00
Net Profit Per Unit (F)
Total Contribution G= (D*A)	1,92,000.00	1,75,000.00
Total Profit for Month H= (G-E)	1,62,000.00	1,45,000.00
Profit Per Unit---------------> H/A	27	29

#2 We should not go for #2 plan because our profit per unit in decreasing by $ 10.29/- however units is sold increased as per below statement:-

	Current	# 2
Description	Amoutn in $	Amoutn in $
Units Sales (A)	6,000.00	7,000.00
Sales Price Per unit (B)	62.00	55.80
Total Veriable Cost Per Unit (C)	30.00	30.00
Add Increase in Labour Cost 40%		4.80
Contribution Per Unit :- D= (B-C)	32.00	21.00
Fix cost Per Month ('E)	30,000.00	30,000.00
Net Profit Per Unit (F)
Total Contribution G= (D*A)	1,92,000.00	1,47,000.00
Total Profit for Month H= (G-E)	1,62,000.00	1,17,000.00
Profit Per Unit---------------> H/A	27	16.71

#3 We should not go for plan #3 as due to this we will get extra loss of $ 4000 for 1000 units as per below statement:-

	# 3
Description	Amoutn in $
Units Sales (A)	1,000.00
Sales Price Per unit (B)	57.00
Total Veriable Cost Per Unit (C)	30.00
Add Increase in Labour Cost 40%	-
Contribution Per Unit :- D= (B-C)	27.00
Fix cost Per Month ('E) With Extra $ 1000	31,000.00
Net Profit Per Unit (F)
Total Contribution G= (D*A)	27,000.00
Total Profit for Month H= (G-E)	-4,000.00
Profit Per Unit---------------> H/A	-4.00