Medbury Communications Systems (MCS) produces mobile radios for arctic and other harsh environments. The costs to...

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Medbury Communications Systems (MCS) produces mobile radios for arctic and other harsh environments. The costs to manufacture and market the radios at the company's normal quarterly volume of 12,960 units are shown in the following table: Unit manufacturing costs Materials (variable) Labor (variable) Overhead (variable portion) Overhead (fixed portion) Total unit manufacturing costs Unit marketing costs Variable Fixed Total unit marketing costs Total unit costs $ 80 120 40 96 40 112 $ 336 152 $ 488 Required: Assume that no connection exists among the situations described in each question below unless otherwise stated. Each is independent. Also assume a regular selling price of $600 per unit unless otherwise stated. Ignore income taxes and other costs that are not mentioned in the accompanying table or in the question itself. a. Market research estimates that quarterly volume could be increased to 15.120 units, which is well within production capacity limitations if the price were cut from $600 to $525 per unit. Assuming that the cost behavior patterns implied by the data in the table are correct. a-1. What would be the impact on quarterly sales, costs, and income? a-2. Would you recommend taking this action? b. On April 1, the federal government offers MCS a contract to supply 2,160 radios to military bases for a June 30 delivery. Because of an unusually large number of rush orders from its regular customers, MCS plans to produce 17,280 units during the second quarter, which for MCS runs from April 1 through June 30. This level of production will use all available capacity for the quarter. If it accepts the government order, MCS would lose 2,160 units normally sold to regular customers to a competitor. The government contract would reimburse its "share of quarterly manufacturing costs" plus pay a $74.000 fixed fee (profit). (No variable marketing costs would be incurred on the government's units.) What impact would accepting the government contract have on second quarter income? (Hint: Part of the question is to figure out the meaning of "share of quarterly manufacturing costs.") c. MCS has an opportunity to enter a highly competitive foreign market. An attraction of the foreign market is that its demand is greatest when the domestic market's demand is quite low; thus, idle production facilities could be used without affecting domestic business. An order for 4,000 radios is being sought at a below-normal price to enter this market. For this order, shipping costs will total $72 per unit; total (marketing) costs to obtain the contract will be $6.400. No other variable marketing costs would be required on this order, and it would not affect domestic business. What is the minimum unit price that MCS should consider for this order of 4,000 radios? Medbury Communications Systems (MCS) produces mobile radios for arctic and other harsh environments. The costs to manufacture and market the radios at the company's normal quarterly volume of 12,960 units are shown in the following table: Unit manufacturing costs Materials (variable) Labor (variable) Overhead (variable portion) Overhead (fixed portion) Total unit manufacturing costs Unit marketing costs Variable Fixed Total unit marketing costs Total unit costs $ 80 120 40 96 40 112 $ 336 152 $ 488 Required: Assume that no connection exists among the situations described in each question below unless otherwise stated. Each is independent. Also assume a regular selling price of $600 per unit unless otherwise stated. Ignore income taxes and other costs that are not mentioned in the accompanying table or in the question itself. a. Market research estimates that quarterly volume could be increased to 15.120 units, which is well within production capacity limitations if the price were cut from $600 to $525 per unit. Assuming that the cost behavior patterns implied by the data in the table are correct. a-1. What would be the impact on quarterly sales, costs, and income? a-2. Would you recommend taking this action? b. On April 1, the federal government offers MCS a contract to supply 2,160 radios to military bases for a June 30 delivery. Because of an unusually large number of rush orders from its regular customers, MCS plans to produce 17,280 units during the second quarter, which for MCS runs from April 1 through June 30. This level of production will use all available capacity for the quarter. If it accepts the government order, MCS would lose 2,160 units normally sold to regular customers to a competitor. The government contract would reimburse its "share of quarterly manufacturing costs" plus pay a $74.000 fixed fee (profit). (No variable marketing costs would be incurred on the government's units.) What impact would accepting the government contract have on second quarter income? (Hint: Part of the question is to figure out the meaning of "share of quarterly manufacturing costs.") c. MCS has an opportunity to enter a highly competitive foreign market. An attraction of the foreign market is that its demand is greatest when the domestic market's demand is quite low; thus, idle production facilities could be used without affecting domestic business. An order for 4,000 radios is being sought at a below-normal price to enter this market. For this order, shipping costs will total $72 per unit; total (marketing) costs to obtain the contract will be $6.400. No other variable marketing costs would be required on this order, and it would not affect domestic business. What is the minimum unit price that MCS should consider for this order of 4,000 radios?

Answer rating: 100% (QA)

a a1 Impact on quarterly sales costs and income Quarterly Sales Current Quarterly Volume 12960 units Current Selling Price 600 per unit Current Quarte... View the full answer