Marquette Manufacturing produces “invisible” electric dog fences, sold through retail locations nationwide. The selling price of the fence is $150 per unit. The cost to manufacture and market the fences is shown below. These figures represent the cost at the company’s normal volume of 3,000 units per month.
Unit Manufacturing Costs | |||
Variable materials | $ 15.00 | ||
Variable labor | $ 17.50 | ||
Variable overhead | $ 12.50 | ||
Fixed overhead | $ 16.00 | ||
Total unit manufacturing costs | $ 61.00 | ||
Unit Marketing Costs | |||
Variable | $ 12.00 | ||
Fixed overhead | $ 17.00 | ||
Total unit marketing costs | $ 29.00 | ||
Total unit costs | $ 90.00 |
(NOTE: Unless otherwise stated, assume that no connection exists between the situation described in each question; each is independent. Also, ignore taxes or other costs not specifically mentioned in the questions.)
Condition 1 :- Reducing sale price
Total variables cost of manufacturing 3000 units = ( 45*3000)=135000
Total fixed production cost = 16*3000=48000
Fixed marketing cost = 17*3000=51000
Profit on sales of 3000 units =(150*3000)-(171000-48000+51000-(12*3000))=180000 or 60/unit
If the company increase the production and reduces the prices then
Profit will be
(125*5000)-(57*5000)-(99000(fixed cost )=625000-384000 =241000 or 48.2/unit
Thus :-
1) Profit per unit decrease
2) Fixed manufacturing expenses reduce (48000/5000)=9.6/unit
3) Fixed marketing expenses reduce =(51000/5000)=10.2/unit
Condition 2 - Selling obsolete units :-
Price of the unit must be kept such that it covers it's marketing expenses and variables cost of marketing =54/unit
Condition 3 - Outsourcing the contract :-
Cost of contract = 90*1500=135000
The in-house cost should include all variable expenses and proportionate fixed expenses
When total production is 1000+1500 the per unit fixed expenses are 99000/2500=39.6
In house cost =45+39.6=84.6/unit
To sell the products directly to customers , it is assumed that variable marketing cost is nil .
Total revenue = (1500*150)+(1000*225)=450000
Total cost incurred =(175*1000)+99000(Fixed )+(17*1000)+135000=426000
Total profit =450000-426000=24000 or 9.6/unit
Condition 4 - Contract for house fences :-
If the contract of 1200 was fulfilled the profit earned would have been
(150*1200)-((54*1200+(99000/1200)=180000-163800=16200
New revenue earned will be (150*1200)+5000-(45*1200)-(99000/1200)=185000-153000=32000
Yes the profit will increase if the company chooses this option
Condition 5 - Online selling :-
Cost of selling =
Variable (2000*45)+(48000)fixed +5000+(10*2000)shipping =163000
Per unit cost =163000/2000=81.5/unit
The minimum price to cover all cost =81.5
However if the company wants to earn profits also then
An initial profit of 60/ unit will make the price (81.5+60)=141.5/unit
Marquette Manufacturing produces “invisible” electric dog fences, sold through retail locations nationwide. The selling...
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