Question

Wedmark Corporation’s Cupertino plant manufactures chips used in personal computers. Its practical capacity is 2,000 chips per week, and fixed costs are $75,000 per week. The selling price is $500 per chip. Production this quarter is 1,600 chips per week. At this level of production, variable costs are $720,000 per week.

Required

(a) What will the plant’s profit per week be if it operates at practical capacity?

(b) Suppose that a new customer offers $480 per chip for an order of 200 chips per week for

delivery beginning this quarter. If this order is accepted, production will increase from 1,600

chips to 1,800 chips per week. What is the estimated change in the company’s profit if it

accepts the order?

(c) Suppose that the new customer in part (b) offered $480 per chip for an order of 600 chips per

week and that Wedmark cannot schedule overtime production. Consequently, it would have

to give up some of its current sales to fill the new order for 600 chips per week. What is the

estimated change in Wedmark’s profit if it accepts this order for 600 chips per week?

Answer 1

Answer requirements as follows: A B с 1 a Particulars Amount 2 Sales $ 8,00,000 3 Less: Variable costs $ 7,20,000 4 Contribution $ 80,000 5 Fixed costs $ 75,000 6 Profit per week $ 5,000 7 8 b Sales $ 8,96,000 9 Less: Variable costs $ 8,10,000 10 Contribution $ 86,000 11 Fixed costs $ 75,000 12 Profit per week $ 11,000 13 Change in profit per week (increase) $ 6,000 14 15 16 c Sales $ 9,88,000 17 Less: Variable costs $ 9,00,000 18 Contribution $ 88,000 19 Fixed costs $ 75,000 20 Less: Opportunity cost of lost contribution on sales $ 8,000 21 Profit per week $ 5,000 22 Change in profit per week 0

Calculations: A B с 1 a Particulars Amount 2 Sales 1=500*1600 3 Less: Variable costs 720000 4 Contribution =C2-C3 5 Fixed costs 75000 6 Profit per week =C4-C5 7 8 b Sales =500*1600+(480*200) 9 Less: Variable costs =720000/1600*1800 10 Contribution =C8-C9 11 Fixed costs 75000 12 Profit per week =C10-C11 13 Change in profit per week (increase) =C12-C6 14 15 16 C Sales =(500*1400)+(480*600) 17 Less: Variable costs =720000/1600*2000 18 Contribution =C16-C17 19 Fixed costs 75000 20 Less: Opportunity cost of lost contribution on sales =20*400 21 Profit per week =C18-C19-C20 22 Change in profit per week =C21-C6 For any queries or doubts related to format or any values please post in comment section, I would take that up.