C12 is a mature product. The sales manager believes that

C12 is a mature product. The sales manager believes that the price of C12 can be raised to $160 per unit with no effect on sales quantity. D57 is a new product introduced last year. Management believes D57 has a great potential and is considering lowering the price to $180 to expand market size and gain market share. The lowering of D57's price is likely to double the total units of D57 sold.

 




Finished Components



C12
D57
Requirements for each finished component:




 RM1

10pounds8pounds
 RM2

0
4pounds
 RM3

2pounds1pound
 Direct labor

2hours3hours
Product information:





 Sales price

$160
$180
 Sales units

12,000
18,000
 Estimated beginning inventory (units)
400
150
 Desired ending inventory (units)
300
200

















 Direct Materials Information



RM1RM2RM3
Cost per pound

$2.00$2.50$0.50
Estimated beginning inventory in pounds
3,0001,5001,000
Desired ending inventory in pounds
4,0001,0001,500








 











Factory Overhead Information

Variable:





Indirect materials-variable


$10,000

Miscellaneous supplies and tools-variable

$5,000

Indirect labor-variable


$40,000

Maintenance costs-variable


$10,080

Heat, light, and power-variable


$11,000

Payroll taxes and fringe benefits-variable

$250,000

Fixed:





Supervision-fixed


$120,000

Maintenance costs-fixed


$20,000

Depreciation-fixed


$71,330

Heat, light, and power-fixed


$43,420

 Total


$580,830


















Selling and Administrative Expense Information











Advertising


$60,000

Sales salaries


$200,000

Travel and entertainment


$60,000

Depreciation-warehouse


$5,000

Office salaries


$60,000

Executive salaries


$250,000

Supplies


$4,000

Depreciation-office


$6,000

 Total


$645,000















Income Tax Rate40%





Required

1. Amend the spreadsheet you constructed in Problem 10-60 to incorporate the changes outlined above. What effect do the changes have on the firm's after-tax operating income?

2. Would you recommend that the firm execute this strategy?

Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula                Ending Inventory Formula =...

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