Problem $4-54($Static$)$ Comprehensive Differential Costing Problem $($LO $4-1,2,4)$

Medbury Communications Systems $($MCS$)$ produces mobile radios for arctic and other harsh environments. The costs to manufacture and market the radios at the company$$s normal quarterly volume of $12,000$ units are shown in the following table:

Unit manufacturing costs

Materials $($variable$)$ $ $80$

Labor $($variable$)120$

Overhead $($variable portion$)40$

Overhead $($fixed portion$)96$

Total unit manufacturing costs $ $336$

Unit marketing costs

Variable $40$

Fixed $112$

Total unit marketing costs $152$

Total unit costs $ $488$

Required:

Assume that no connection exists among the situations described in each question below unless otherwise stated. Each is independent. Also assume a regular selling price of $$600$ per unit unless otherwise stated. Ignore income taxes and other costs that are not mentioned in the accompanying table or in the question itself.

a$.$ Market research estimates that quarterly volume could be increased to $14,000$ units, which is well within production capacity limitations if the price were cut from $$600$ to $$525$ per unit. Assuming that the cost behavior patterns implied by the data in the table are correct.

a$-1.$ What would be the impact on quarterly sales, costs, and income?

Market research estimates that quarterly volume could be increased to $14,000$ units, which is well within production capacity

limitations if the price were cut from $$600$ to $$525$ per unit. Assuming that the cost behavior patterns implied by the data in

the table are correct.

A$1.$ What would be the impact on quarterly sales, costs, and income? $($Select option "increase" or "decrease", keeping before

price reduction as the base. Select "none" if there is no effect.$)$