Answer:
Schweser Satellites Inc.
The incremental profit is:
= $845,000
Explanation:
a) Data and Calculations:
Selling price of Satellite Earth Station = $95,000 each
Total sales revenue = $4,750,000 ($95,000 * 50)
Fixed costs, F = $2.5 million
Annual production and sales units = 50 units
Total profits = $500,000
Total contribution = $3 million ($2.5 m + $500,000)
Variable costs = $1,750,000 ($4,750,000 - $3,00,000)
Variable cost per unit = $35,000 ($1,750,000/50)
Assets = $4 million
Equity = $4 million
Additional assets = 4.5 million
Additional fixed operating costs = $380,000
New assets = 8.5 million
Fixed operating costs = $2.88 million
Variable cost reduction per unit = $12,000
New variable cost per unit = $23,000 ($35,000 - $12,000)
Production and sales units = 65 (50 + 15)
New selling price per unit = $88,000
Cost of equity = 16%
Tax rate = 0%
Profit under new arrangements:
Contribution per unit = $65,000 ($88,000 - $23,000)
Total contribution margin = $4,225,000 ($65,000 * 65)
Fixed operating costs = $2,880,000
Net operating profit $1,345,000
Incremental profit = $845,000 ($1,345,000 - $500,000)
