Question

Freedom Furniture Manufacturing (FFM) has been manufacturing furniture for the home for over 30 years. George Fearless, the owner, has decided he would like to manufacture an executive desk that contains space for not only a laptop dock but also an MP3 player dock. Based on his experience with furniture, he believes the desk will be a popular item for four years, and then will be obsolete because technology will have changed again. FFM expects the design phase to be very short, maybe four months. There is no R&D cost because the idea came from George, without any real research. Also, fixed production costs will not be high because FFM has excess capacity in the factory. The FFM accountants have developed the following budget for the new executive desk: B (Click to view the budget.) Requirements Requirement 1. Using the assumptions given for this requirement, if FFM prices the desks at $500 each, how much profit will FFM make in total and on average per desk? Begin by calculating the total profit FFM will make. (Enter operating losses with parentheses or a minus sign.) Projected Life Cycle Statement of Comprehensive Income Revenues Variable costs: Production Distribution Contribution margin Fixed costs: Design Production Marketing Distribution Enter any number in the edit fields and then click Check Answer.

Answer 1

Answer 1. Product Life Cycle Statement of Comprehensive Income Months 1-4 5- 36 37 - 52 Total Quantity Revenue 19,200 5440 600*32 340*16 24,640 19200*500 9600000 500*5440 2720000 12320000 Variable costs Production 4224000 19200*220 5440*220 1196800 5420800 5440 25 Distribution 460800 19200*24 136000 596800 6017600 ontribution margin 6302400 Fixed costs: Design 850,000 Production 9000*32 288000 9000 16 144,000 432,000 108800 700*16 Marketing 3400*32 11200 120000 1,498,000 Distribution 2300*32 73600 1400*16* 22400 96000 Profit 4.804.400 Total Profit / No of Desk Profit per Desk 4,804,400/24,640 $195 Answer 2. Product Life Cycle Statement of Comprehensive Income 1-4 5 - 36 Months Total Quantity 600*32 19,200 7200000 Revenue 19200*375 Variable costs Production 19200*220 4224000 Distribution 19200*24 460800 4684800 ntribution margin 2515200 Fixed costs: Design 850,000 Production 9000*32 288000 Marketing 3400*32 108800 Distribution 2300*32 73600 1,320,400 1,194,800 Profit * This will be a profitable venture Answer 3 Product Life Cycle Statement of Comprehensive Income 37 - 52 Months 1-4 5- 36 Total Quantity Revenue 600*32 19,200 7200000 19,200 19200*375 7200000 Variable costs Production 4224000 19200*220 4224000 Distribution 19200*24 460800 460800 4684800 ontribution margin 2515200 Fixed costs: Design 850,000 144,000 11200 432,000 120000 Production 9000*32 288000 9000* 16 700*16 1400 16 Marketing 108800 3400*32 73600 1,498,000 Distribution 2300*32 22400 96000 Profit 1,017,200 * This will be a profitable venture even if it incurred Fixed cost for 52 months