Question

b. CompDesk's production supervisors state they could increase building 1's capacity by 100 desks per month by producing desks on the weekend. Producing on the weekend would not affect the sales price. Variable cost per unit would increase by $26 for those produced on the weekend because of the premium paid to labor. Fixed costs would also increase by $20,200 per month. b-1. Calculate the differential operating profit (loss). (Losses and amounts to be deducted should be indicated with a minus sign.) Differential revenues Differential costs: Fixed Variable Net differential operating loss b-2. Should CompDesk produce desks on the weekend? Yes O No c. Independent of the situation in requirement (b), CompDesk could add additional equipment and workers to building 1, which would increase its capacity by 100 desks per month. This would not affect the sales price or variable cost per unit but would increase fixed costs by $15,100 per month. C-1. Calculate the differential operating profit (loss). (Losses and amounts to be deducted should be indicated with a minus sign.) Differential revenues Differential costs: Fixed Variable Net differential operating profit

Answer 1

Since selling price of the desk is not provided in the question, I will assume some random selling price to answer this question.

Let us assume that selling price per unit of desk is $180 per unit.

b-1)

Computation of differential operating profit (Loss)
				Calculation	$
Differential revenue	100 X $180	$18000
Differential costs:
Variable	100 X $26	$2600
Fixed		$20200
Net differential loss		$4800

Hence CompDesk should not produce desk on the weekend.

c-1)

Computation of differential operating profit (Loss)
				Calculation	$
Differential revenue	100 X $180	$18000
Differential costs:
Variable		nil
Fixed		$15100
Net differential profit		$2900