Buck & Sons Signs is a family business that designs and manufactures signs. The Company serves three types of customers: the local government, a large restaurant chain, and one-off shops. The different types of customers require varying degrees of design creativity depending on uniqueness of the type of signs.

This past year, leadership of the Company transferred from Herbert Buck to his son, Josh Buck. Concerned with current profitability, Josh is in the process of evaluating the Companys product mix and seeks your help to determine whether a shift in product/customer mix is warranted. There is some flexibility in changing the product mix based on current production and maximum demand for each type of customer (where information about demand is shown in the table below).

The Companys pricing system is based on direct cost-plus where direct cost includes only direct materials and direct labor. The Company charges 40%, 20%, and 60% above direct cost to the government, restaurant chain, and one-off shops, respectively.

Due to a tight labor market for creative designers, the total number of creative design hours available to the Company is limited to 4,300 hours per year. The creative designers are on fixed salaries and their total compensation is included in total fixed overhead of $450,000. Fixed overhead is allocated to each type of customer based on direct labor dollars.

Josh has compiled information from various sources and provided it below. All dollar amounts are averages per sign:

	Local government	Restaurant chain	One-off shops
Current number of signs produced	200	1,000	600
Maximum demand	300	1,400	1,100
Revenue, costs, and profit per sign produced
Average sales revenue	$1,470	$720	$1,280
Direct materials (variable)	$650	$500	$500
Direct labor (variable)	$400	$100	$300
Total direct cost (sum)	$1,050	$600	$800
Fixed overhead (fixed)	$500	$125	$375
Profit	-$80	-$5	$105
Creative designer hours per sign	4.00	0.50	5.00

Required:

1. Calculate total profit or loss under the current mix of types of signs produced and sold (200, 1,000, and 600 for government, restaurant, and one-off shops, respectively). (15 points)

1. Josh looks at the information provided and says the following: Our cost-plus markup and profit per sign are highest for the one-off shops, in fact it is the only profitable product line! We will maximize profit if we shift all of our effort (production and all designer time) to making signs for our one-off customers. Assume transferring resources between product lines will not affect total fixed overhead cost incurred. Calculate total profit or loss following Joshs advice. (15 points)

1. Do you agree with Joshs logic? If not, propose an alternative product mix that does not exceed the constraints on designer time or customer demand. Assume transferring resources between product lines will not affect total fixed overhead cost incurred. Be sure to show your calculations and show total firm profit or loss that will result from your proposal. (20 points)

1. One of the Companys part-time designers is considering leaving for a competitor. This designer currently receives compensation of $40,000 per year and provides 800 hours of designer time. She has been offered $55,000 in compensation from the competitor. Assuming that it will not be possible to hire a replacement if this part-time designer leaves, should Buck & Sons match the $55,000 offer (assume that any decision made would have no impact on the compensation of the other creative designers at Buck & Sons)? Provide calculations in support of your answer. (15 points)