1. The company's marketing team estimates that sales volume could be increased to 5,000 units per month if the sales price was lowered from $150 to $125 per unit. The production manager has confirmed that they have the capacity to increase production to this level. Assume that the cost pattern will not vary at the increased level of production. If management decreases the price, what would the impact on monthly sales, income and costs be? For each figure, indicate whether the change will result in an increase, decrease or no change in the sales, income and cost. Would you recommend the reduction in sales price? Why or Why not? (Show all supporting calculations). 2. At the end of the year the production manager is taking inventory and finds 600 units of an older model of invisible fencing that the company no longer manufactures. These obsolete units can be disposed of through their regular channels, thereby incurring variable marketing expenses. What is the lowest price that they should accept for these obsolete units, realizing that if they do not sell them these units will have to be thrown away. (Show all supporting calculations), 3. Marquette receives a proposal from an outside contractor who offers to make and ship 1,500 fences directly to Marquette's customers as orders arrive from Marquette's sales force. When managers meet to discuss this proposal, Product Manager Will Hansen brings up the fact that they have the design for an electric fence that can be used for large animals that has never been produced. Will suggests that this may be the perfect time to launch this new product and at a selling price of $225 per unit it is sure to increase sales revenue. The production manager calculates that the idle time created by accepting the contractors offer would allow them to produce 1,000 of the new fence. The cost to produce the new fence would be $175 in variable manufacturing expense but fixed manufacturing and marketing costs would remain unchanged. The product mix would now be 1.000 of the new fence and 1,500 of the old fence. If Marquette wants to seriously consider taking the contractors offer, what in-house cost should be used to evaluate the outside contractor's bid. If the payment to the outside contractor is $90 1. The company's marketing team estimates that sales volume could be increased to 5,000 units per month if the sales price was lowered from $150 to $125 per unit. The production manager has confirmed that they have the capacity to increase production to this level. Assume that the cost pattern will not vary at the increased level of production. If management decreases the price, what would the impact on monthly sales, income and costs be? For each figure, indicate whether the change will result in an increase, decrease or no change in the sales, income and cost. Would you recommend the reduction in sales price? Why or Why not? (Show all supporting calculations). 2. At the end of the year the production manager is taking inventory and finds 600 units of an older model of invisible fencing that the company no longer manufactures. These obsolete units can be disposed of through their regular channels, thereby incurring variable marketing expenses. What is the lowest price that they should accept for these obsolete units, realizing that if they do not sell them these units will have to be thrown away. (Show all supporting calculations), 3. Marquette receives a proposal from an outside contractor who offers to make and ship 1,500 fences directly to Marquette's customers as orders arrive from Marquette's sales force. When managers meet to discuss this proposal, Product Manager Will Hansen brings up the fact that they have the design for an electric fence that can be used for large animals that has never been produced. Will suggests that this may be the perfect time to launch this new product and at a selling price of $225 per unit it is sure to increase sales revenue. The production manager calculates that the idle time created by accepting the contractors offer would allow them to produce 1,000 of the new fence. The cost to produce the new fence would be $175 in variable manufacturing expense but fixed manufacturing and marketing costs would remain unchanged. The product mix would now be 1.000 of the new fence and 1,500 of the old fence. If Marquette wants to seriously consider taking the contractors offer, what in-house cost should be used to evaluate the outside contractor's bid. If the payment to the outside contractor is $90
