Question

nderson produces color cartridges for inkjet printers. Suppose cartridges are sold to mail-order distributors for $12 each and that manufacturing and other costs are as follows: Variable Cost per Unit Fixed Cost Per Month Direct material $4.00 Factory overhead $17,000 Direct labor 0.40 Selling and administrative 8,000 Factory overhead 0.50 Distribution 0.10 Total $5.00 Total $25,000 The variable distribution costs are for transportation to mail-order distributors. Also assume the current monthly production and sales volume is 20,000 and monthly capacity is 25,000 units. If the sales price per unit increases by $2.00 and unit sales decrease by 2,000 units, Anderson’s monthly profit would: Select one:

Answer 1

Answer:

Anderson's Profit is $112,800 after the change in Price and Volume, Although it was $90,000 before the changes.

Explanation:

Unit sold is 20,000 units

Unit Sales Price is $12

Therefore total Sales Value is $240,000

Cost of Production

Direct Material costs $4 x 20,000 = $80,000

Fixed Cost $17,000

Direct Labour costs $0.40 x 20,000 = $8,000

Factory Overhead $0.50 x 20,000 = $10,000

Total Production costs = $115,000

Total Margin = ($240,000 - $115,000) = $125,000

Variable Distribution Costs $5 x 20000 x 0.10  = $10,000

Other Distribution Costs $25,000

Total Distribution costs $35,000

Profit = ($125,000 - $35,000) = $90,000

***If Sales Price increases by $2/unit and Unit Sales drops by 2,000 units

Unit sold is 18,000 units

Unit Sales Price is $14

Therefore total Sales Value is $252,000

Cost of Production

Direct Material costs $4 x 18,000 = $72,000

Fixed Cost $17,000

Direct Labour costs $0.40 x 18,000 = $7,200

Factory Overhead $0.50 x 18,000 = $9,000

Total Production costs = $105,200

Total Margin = ($252,000 - $105,200) = $146,800

Variable Distribution Costs $5 x 18000 x 0.10  = $9,000

Other Distribution Costs $25,000

Total Distribution costs $34,000

Profit = ($146,800 - $34,000) = $112,800