Superior View is a manufacturer of binoculars. Its high-end product is available online and is also sold at select retail outlets. The binoculars sell for an average
price of $310.
Superior currently produces and sells 15,000 sets of binoculars each month. The manufacturing capacity is 20,000 sets per month.
Fixed costs per month Variable costs per set
Factory overhead $450,000 Direct materials $80
Selling and administrative expenses 375,000 Direct labor 50
Total $825,000 Factory overhead 35
Distribution 10
$175
The distribution costs are to transport products to retail outlets.
REQUIRED:
Consider the effects of the changes presented in each of the following independent scenarios. What effect would the changes have on monthly profit and/or which decision should
be made? Show the calculations, using the functionality of Excel, to support your answers. You may insert extra lines in the spreadsheet as needed.
HINT: You probably want to consider the initial contribution margin as a baseline.
1 If the selling price is increased by $50 per set, Superior projects that it will sell 2,000 fewer sets per month.
2 If the selling price is decreased by 10% per set, Superior projects that it will sell 6,000 more sets per month. Because of the factory capacity limits, however,
50% overtime pay would have to be added to direct labor on the last 1,000 sets.
3 Superior is considering a special order to a Canadian distributor in a different market. The proposed order is for 1,000 sets of binoculars at $250 per set.
The distributor would cover the transportation costs, but $750 of additional administrative costs would be incurred to fill the order.

Superior currently produces and sells 15,000 sets of binoculars each month. The manufacturing capacity is 20,000 sets per month.
Fixed costs per month Variable costs per set
Factory overhead $450,000 Direct materials $80
Selling and administrative expenses 375,000 Direct labor 50
Total $825,000 Factory overhead 35
Distribution 10
$175
The distribution costs are to transport products to retail outlets.
REQUIRED:
Consider the effects of the changes presented in each of the following independent scenarios. What effect would the changes have on monthly profit and/or which decision should
be made? Show the calculations, using the functionality of Excel, to support your answers. You may insert extra lines in the spreadsheet as needed.
4 A South American distributor proposes a special order for 6,000 sets of binoculars for $250 per set. The distributor would cover the transportation costs,
but $1,000 of additional administrative costs would be incurred to fill the order. In this case, overtime production is not possible.
5 Every set of binoculars is delivered by Superior in a designer case. Superior has been approached by a local manufacturer who has offered to supply the
cases on a one-year contract for $10 per case. Should the offer be accepted, Superior would be able to reduce variable manufacturing costs by 5%, reduce
fixed costs by $5,000 each month, and lease out the manufacturing space saved for $4,000 per month.
6 If Superior were to eliminate the option for lenses with a long distance range, its variable costs could be reduced by $5 and factory overhead could
be reduced by $50,000. However, the selling price would probably have to be reduced to an average of $290 per set.

Answer rating: 100% (QA)

Computation of operating income at current level Number of units sold 15000 Units Description Per unit Total Revenue 310 4650000 Variable costs Direct ... View the full answer