Fuzzy Toys which specialises in making soft toys for children has recently designed a new hypo-allergic soft

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Question:

Fuzzy Toys which specialises in making soft toys for children has recently designed a new hypo-allergic soft toy containing fewer allergy-producing substances. Fuzzy Toys is considering to produce and market this hypo-allergic Fuzzy Hippo soft toy in-house. The following information has been provided as estimates if it was to produce Fuzzy Hippo each month:

Labour costs and factory overheads contain a combination of variable costs and fixed costs. Fuzzy Toys is also investigating whether to out-source the production of Fuzzy Hippo to Alleanne, a hypo-allergic manufacturer in clothing and textiles. Alleanne has offered to produce at a cost of $18 per soft toy. If Fuzzy Hippo are produced by Alleanne, Fuzzy Toys will still need to pay for the sales commission but estimates will be able to reduce the fixed factory overheads to $12,795. They have also estimated that it will cost $1.75 cach to ship Fuzzy Hippo to Fuzzy Toys's warehouse from Alleanne.

Required:

(a) Calculate the following: (1) expected breakeven point in units per month if Fuzzy Toys is to produce Fuzzy Hippo. (ii) expected monthly profit if 11,000 units were produced and sold. You must show your workings to obtain full marks.

(b) Determine whether Fuzzy Toys should make or buy at 6,200 units, and why. You must show your workings for both make and buy to obtain full marks.

(c) Determine the number of Fuzzy Hippo units where Fuzzy Toys is indifferent on whether to make or buy. In other words, the net profit will be the same at this specific volume for either make or buy. You must show your workings to obtain full marks.