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The company should not take up the option of increasing the price as the company would reduce its income by 610
any would reduce its income by 610000 if the company does so.
WIthout Contract WIth Goverment Contract
Regular
Revenue 17,400,000.00 15,225,000.00
Variable manufacturing cos 7180000 6282500
Variable marketing cost 1100000 962500
Contribution margin 9,120,000.00 7,980,000.00
Fixed manufacturing cost 1980000
Fixed marketing cost 2310000
Income 4,830,000.00
242,500.00 8,222,500.00
1980000
2310000
3,932,500.00
Recommendation: At this price unit, the 2227,000 of differntial costs caused by the 1000 uni
costs caused by the 1000 unit order will just recover
Other than variable marketing costs, other costs related to the manufacture of these 200 units have been consumed. The
Because the 200 units have to be sold through regular channels at reduced prices, the differential cost per unit = va
units have been consumed. Therefore, any selling price above the differential costs would be automatically considered as an income.
e differential cost per unit = variable marketing cost = $275 per unit. This price corresponds to the break-even price just for thos
cally considered as an income.
break-even price just for those 200 units
All Production 1000 units
In-house Contracted
Revenue 13050000 13050000
Variable manufacturing Cost 5385000 3590000
Variable marketing Cost 825000 770000
Contribution Margin 6840000 8690000
Fixed manufacturing Cost 1980000 1386000
Fixed marketing Cost 2310000 2310000
The maximun unit price in 2444(2444000/1000), since 2475 is the the purchase price is not appropriate
not appropriate
1000 Regular hoists Contract 1000 Regular hoists
Produced inhouse Produce 8-- modified hoists
Regular(In) Regular(Out) Modified
Revenue 13050000 8700000 4350000 3960000
Variable maufacturing cost 5385000 3590000 2420000
Variable marketing costs 825000 550000 275000 440000
Contribution Margin 6840000 4560000 4075000 1100000
Fixed manufacturing Cost 1980000 1980000
Fixed marketing Cost 2310000 2310000
Income 2550000
Difference
Since the company is able to attain enough profits by contracting the work, hence the propasal should be accepted
Total
17010000
6010000
1265000
9735000
1980000
2310000
5445000
2895000