Moreno Corporation manufactures two different coffee makers, Professional for commercial use and Home for family use. Albert Moreno, the president, recently received complaints from some members of the board of directors about the company's failure to reach the expected profit of $200,000 per month. Mr. Moreno is, therefore, under great pressure to improve the company's bottom line. Under his direction, Angie Roy, the controller, prepared the following monthly cost data for Mr. Moreno.

The market price for coffee makers comparable to Professional is $63 and to Home is $21. The company's administrative expenses amount to $125,000.
Required
Round your figures to two decimal points.
a. Compute the cost per unit for both products.
b. Determine the company's profit or loss.
c. Charles Wei, the marketing manager, recommends that the company implement a focused marketing strategy. He argues that advertisements in trade journals would be more effective for the commercial market than on TV. In addition, the cost of journal ads would be only $21,000. He also proposes sending discount coupons to targeted households to reach a broad market base. The coupons program would cost $72,000. Compute the new cost of each product, assuming that
Mr. Moreno replaces TV advertising with Mr. Wei's suggestions.
d. Determine the company's profit or loss using the information in Requirement c.

Transcribed Image Text:

Professional (P) $24 per unit $12 per hour x 0.8 hour production time Direct Cost Home (H) $8 per unit $12 per hour x 0.3 hour production time Direct materials Direct labor Category Estimated Cost Cost Driver Use of Cost Driver Product inspection Machine setups Product promotion $ 60,000 15,000 200,000 acility depreciation95,000 $570,000 Number of units Number of setups Number of TV commercials Number of P: 15,000 units; H: 45,000 units P: 30 setups; H:45 setups P: 10, H: 10 Number of machine hours P:7,160 hours; H: 4,640 hours Total