After one year using the TopCap system, Jonathan Smith, vice president for marketing at C&C Sports, is
Question:
The initial specifications for the TopCap system required three workers per eight-hour shift to make up to 1,000 caps per day. Based on initial demand forecasts, Jonathan asked Chad Davis, vice president for operations, to make 250,000 caps in the first year the product was offered. Jonathan is convinced that C&C could sell at least 500,000 caps per year with the correct investment in marketing.
Required
a. By how much would annual operating income increase if a second shift was used to produce additional caps? Refer to Exhibit 9-2 for current revenue and cost information.
Assume that the relevant range for the fixed costs is 750,000 caps.
b. What additional one-time marketing investment could be justified to increase sales to meet anticipated demand? Remember that there are only 9 years of usable life remaining for the TopCap system and that C&C Sports uses a 12% discount rate.
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a Cash Flow Timing Amount 12 PV Factor Present Value Sales ...View the full answer
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