Bradshaw Industries makes two varieties€”Standard and Deluxe€”of its one product. The following data are available:

You also know that Bradshaw incurs common fixed costs of $1,400,000.
Suppose Bradshaw is considering changing its product mix to sell equal amounts of its Standard and Deluxe products. Total sales would remain at 300,000 units. This change would be implemented over the next two to three years.

Required:
a. Why should Bradshaw consider the common fixed costs as being controllable for this decision?
b. Allocating common fixed costs as per the number of units, calculate Bradshaw€™s expected profit with the new product mix.
c. Repeat part (b) except use the number of direct labor hours to allocate costs to the two products.
d. Which of the two estimates, in part (b) or part (c), do you feel is a superior estimate of profit with the new mix?Why?

Transcribed Image Text:

Standard Deluxe Number of units Labor hours per unit Price per unit Variable costs Contribution margin 250,000 50,000 $14 S8 S6 $18 $9 $9