Question $3.$

Walter Wall Ltd$.$ has just developed a new carpet design, for which the following

estimates of sales potential and costs are made:

A$.$ Sales Potential.

Sales demand of $50,000$ to $90,000$ square meters sells at $15$ per square

meter. If the sales price is $20$ per square meter the annual demand is

between $34,000$ and $44,000$ square meters.

B$.$ Production.

At production volumes of $45,000$ square meters or less, fixed costs are

$106,000$ per year and variable cost per square meter is $16.$

At higher production quantities, fixed costs would increase to $154,000$

per year and the variable cost would be $12$ per square meter.

If the decision is to sell the new carpet, the cost of production would

include a share of the head office cost of $40,000$ per year.

The costs of developing the new carpet is $30,000.$ The production of the new

carpet would have to be undertaken by Walter Wall himself. He would have to

give up the chairmanship of another company for which he is paid $6,000$ per

year. The production of the new carpet design would be undertaken in a factory

owned by the company but rented out to HB Ltd for $5,000$ per quarter.

Required:

Advise Walter Wall Ltd$.$ whether the new carpet should go into production, and

if so at what selling price per square meter.