Jacque de Paris, a high-fashion womens dress manufacturer, is planning to market a new cocktail dress for

Question:

Jacque de Paris, a high-fashion women’s dress manufacturer, is planning to market a new cocktail dress for the coming season. Jacque de Paris supplies retailers in Europe and the United States.

Four yards of material are required to lay out the dress pattern. Some material remains after cutting, which can be sold as remnants. The leftover material could also be used to manufacture a matching cape and handbag. However, if the leftover material is to be used for the cape and handbag, more care will be required in the cutting, which will increase the cutting costs.

The company expects to sell 1,000 dresses if no matching cape or handbag is available. Market research reveals that dress sales will be 15% higher if a matching cape and handbag are available.

The market research indicates that the cape and handbag will not be sold individually, but only as accessories with the dress. The various combinations of dresses, capes, and handbags that are expected to be sold by retailers are as follows:

Percent of Total

Complete sets of dress, cape, and handbag … 72%

Dress and cape ……………………………… 10%

Dress and handbag …………………………. 12%

Dress only …………………………………… 6%

Total ………………………………………. 100%

The material used in the dress costs €90 a yard, or €360 for each dress. The cost of cutting the dress if the cape and handbag are not manufactured is estimated at €105 a dress, and the resulting remnants can be sold for €24 for each dress cut out. If the cape and handbag are to be manufactured, the cutting costs will be increased by €34 per dress. There will be no salable remnants if the capes and handbags are manufactured in the quantities estimated. The selling prices and the costs to complete the three items once they are cut are as follows:

1. Calculate the incremental profit or loss to Jacque de Paris from manufacturing the capes and handbags in conjunction with the dresses.

2. Identify any non-quantitative factors that could influence the company’s management in its decision to manufacture the capes and handbags that match the dress.