Comprehensive differential costing problem. Garden Bay. Inc., produces hydraulic hoists that hospitals use to move bedridden patients. The costs to manufacture and market the hydraulic hoists at the company's normal volume of 3,000 units per month are shown in the following display.

Unless otherwise stated, assume that no connection exists between the situations described in the questions; each is independent. Unless otherwise stated, assume a regular selling price of $740 per unit. Ignore income taxes and other costs that are not explicitly mentioned in the above display of cost data or in the question itself.

a. Market research estimates that volume could be increased to 3,500 units, which is well within production capacity limitations, if the price were cut from $740 to $650 per unit. Assuming that the cost behavior patterns implied by the data given above are correct, would you recommend taking this action? What would be the impact on monthly sales, costs, and income?

b. On March 1, the federal government offers Garden Bay a contract to supply 500 units to Veterans Administration hospitals for a March 31 delivery. Because of an unusually large number of rush orders from its regular customers. Garden Bay plans to produce 4.000 units during March, which will use all available capacity.
If it accepts the government order, it would lose 500 units normally sold to regular customers to a competitor. The government contract would reimburse its "share of March manufacturing costs" plus pay a $50,000 fixed fee (profit). (No variable marketing costs would be incurred on the government's units.) What impact would accepting the government contract have on March income.' (Part of your problem is to figure out the meaning of "share of March manufacturing costs ")

c. Garden Bay has an opportunity to enter a foreign market in which price competition is k een. An attraction of the foreign market is that its demand is greatest when the domestic market's demand is quite low; thus, idle production facilities could be used without affecting domestic business.
An order for 1,000 units is being sought at a below-normal price to enter this market. For this order, shipping costs will total $75 per unit: total (marketing) costs to obtain the contract will be $4,000. No other variable marketing costs would be required on this order, and it would not affect domestic business. What is the minimum unit price that Garden Bay should consider for this order of 1 ,000 units?

d. An inventory of 230 units of an obsolete model of the hoist remains in the stockroom.
These must be sold through regular channels (thus incurring variable marketing costs) at reduced prices or the inventor) w ill soon be valueless. What is the minimum acceptable selling price for these units?

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Unit Manufacturing Costs Variable materials Variable labor.... Variable overhead Fixed overhead.. Total unit manufacturing costs. Unit Marketing Costs Variable marketing costs Fixed marketing costs... Total unit marketing costs. Total unit costs... $100 150 50 120 $420 $ 50 140 190 $610