Normal Volume 3000

COSTS FOR NORMAL VOLUME

Unit Manufacturing Costs
Variale Material 550
Variable Labor 825
Variable Overhead 420
Fixed Overhead 660

Unit Marketing Costs

Variable 275
Fixed 770

Selling Price 4350

Total Fixed Costs 4290000

CMu 2280
CMR 0.524137931

ANSWER 1
Break Even Q = FC/CMu 1881.5789473684
Break Even Sales = FC/CMR 8184868.42105263

ANSWER 2
New Volume 3500
New Selling Price 3850

NEW
Sales 13475000
Variable Costs 7245000
Contribution Margin 6230000
Fixed Costs 4290000
Income 1940000

Recommendation: Lowering Prices reduces income, it is not advisable

ANSWER 3
New Volume 3500
500
For Government contract
Sales = Variable & fixed Mfg Costs plus 275000 1420000

WITHOUT GOVT. CONTRACT

Regular Customer Only
Sales 17400000
Variable ManufacturingCosts 7180000
Variable Marketing Costs 1100000
Contribution Margin 9120000
Fixed Costs 4290000
Income 4830000

Recommendation: Don't accept government contract

ANSWER 4

For the foreign order of volume 1000

Fixed marketing cost 22000
Variable Shipping Cost 410
Variable Manufacturing Cost 1795

Minimum price 2227

ANSWER 5

Obsolete Inventory
Manufacturing Cost is SUNK COST
Minimum Price should be equal to variable mkting cost as regular channels are used
Thus minimum price 275

ANSWER 6

WITHOUT OUTSIDE CONT.

Volume 3000
Sales 13050000
Variable Manufacturing Costs 5385000
Variable Marketing Costs 825000
Total contribution Margin 6840000
Fixed Manufacturing Costs 1980000
Fixed Marketing Costs 2310000
Payment to Contractor
Income 2550000

Maximum X should be 2444000

implying Maximum price 2444

Recommendation: Purchase price of 2475 is not acceptable

ANSWER 7

WITHOUT OUTSIDE CONT.

Volume 3000
Sales 13050000
Variable Manufacturing Costs 5385000
Variable Marketing Costs 825000
Total contribution Margin 6840000
Fixed Manufacturing Costs 1980000
Fixed Marketing Costs 2310000
Payment to Contractor
Income 2550000

Maximum X should be 2950000

implying Maximum price 2950

Recommendation: Purchase price of 2475 will now be acceptable

 given

given
given
given
given

given
given

given

INITIAL
13050000 Increase
6210000 Increase
6840000 Decrease
4290000 Remain Same
2550000 Decrease

regular customers
government contract

WITH GOVT. CONTRACT

Regular Customer Government
 15225000 1420000
6282500 897500
962500 0
7980000 522500
4290000
4212500

units

per unit
per unit

WITH OUTSIDE CONT.

In-house
2000
13050000
3590000
770000
8690000
1386000
2310000
X
4994000 minus X
 WITH OUTSIDE CONT.
In-house modified
2000 800
13050000 3960000
3590000 2420000
770000 440000
8690000 1100000
1980000
2310000
X
5500000 minus X