Cora Corporation produces refrigerator units. The company?s normal production and sales volume of Standard units is 3,000 units per month, and units sell for $800 each. The costs of manufacturing and marketing a Standard model are as follows:

Variable manufacturing cost per unit ............................ $ 250Variable marketing cost per unit ......................................... 50Fixed product cost ....................................................... 350,000Fixed period cost ......................................................... 400,000

The company is considering diversifying the product line to include two additional models, Economy and Deluxe, which would sell for $670 and $900 per unit, respectively. The costs of manufacturing these new models are as follows:

Total fixed product and period costs are expected to remain unchanged. Cora expects to sell 1,250 units of the Economy model and 600 units of Deluxe model per month. The company cannot expand its production capacity beyond its current level of 3,000 units.

Required:

1. What combination of production and sales will result in the highest profit? Support your answer with relevant calculations.

2. Suppose that a supplier is willing to supply 600 units of the Standard model at a price of $250 per unit. Also assume that the company can sell all that it can produce of the remaining two models. Explain whether the supplier?s offer should be accepted, and determine how many Economy and Deluxe models should be produced.

Transcribed Image Text:

Economy Deluxe Variable manufacturing cost Variable marketing cost 40% below Standard $490 10% above Standard Twice Standard