3. In question one, you computed the number of hammers to sell to find a point of indifference for the demand to decide whether or not to add the hammers. Now, using Guilia's estimates and assumptions for both piton and hammer production and sales, what would be the total annual aggregate effect on the TOTAL gross margin of adding the production and sales of the new wall hammer product line?

Table 1

Volume		50,400
Revenue		$529,200
Materials	$73,080
Direct Labor	$345,000
Factory Overhead
Supplies	$5,544
Power	$29,808
Depreciation	$14,355
Occupancy	$33,000
Total Manufacturing costs		$500,787
Gross Margin		$28,413	5.4%

Exhibit 3: Current and Estimated Cost and Revenue Data Current Results Average monthly piton demand Selling price per piton Annual worker labor cost (fully-loaded, including benefits)4,200 units Annual machine and tool depreciation (existing machines) Annual occupancy cost (including building lease) Annual lighting/heating/utilities cost Direct material cost per piton Variable energy cost per piton Variable supplies cost per piton Annual administrative costs Estimated Information Increase in fixed utility costs due to new machine Material costs (per hammer) Utility costs per hammer Supply costs per hammer $10.50 $ 57,500 per worker $ 14,355 $ 33,000 $ 29,808 $ 1.45 $ 0.18 $ 0.11 $ 7,200 $864 $10.44 $0.46 $0.14 BAB278/ MAY 2015

Exhibit 2: Depreciation Schedule, Including Estimate for Injection Molding Machine Subtotal Machine type Cold roll and cut Oven & drop- forge Bore Deburr and polish Package Injection mold Total (making just pitons) Cost $29,000 $88,000 $15,000 $9,000 $2,550 $143,550 $35,000 $178,550 Life 1010101010-7 $ 2,900 $ 8,800 $ 1,500 $ 900 $ 255 $ 14,355 $ 5,000 $ 19,355 Annual depreciation

Answer rating: 100% (QA)

Impact of Adding Hammers on Total Gross Margin Based on the information providedwe can estimate the total annual aggregate effect on the total gross margin of adding the new wall hammer product lineHe... View the full answer