Company manufactures high-end sunglasses that it sells to mail-order distributors for

$60. Manufacturing and other costs foll

Nantucket Optics Company manufactures high-end sunglasses that it sells to mail-order distributors for Nantucket Optics Company manufactures high-end sunglasses that it sells to mail-order distributors for

$ Manufacturing and other costs foll

$60. Manufacturing and other costs foll

Nantucket Optics Company manufactures high-end sunglasses that it sells to mail-order distributors for

$60. Manufacturing and other costs foll

Applications of Differential Analysis

Nantucket Optics Company manufactures high-end sunglasses that it sells to mail-order distributors for $60. Manufacturing and other costs follow:

Variable Costs per Unit

Fixed Costs per Month

Direct Materials$13

Factory Overhead$20,000

Direct Labor12

Selling and Administrative$10,000

Factory Overhead2

Total$30,000

Distribution3

Total$30

The variable distribution costs are for transportation to mail-order distributors. The current monthly production and sales volume is 5,000 units. Monthly capacity is 6,000 units.

Determine the effect of each of the following independent situations on monthly prots.

A $2.00 increase in the unit selling price should result in a 1,200-unit decrease in monthly sales. Show separate computations for the contribution margin forthe units sold at the higher price and the units sold at the lower price and explain the difference between the two

b.A 10% decrease in the unit selling price should result in a 2,000-unit increase in monthly sales. However, because of capacity constraints, the last 1,000 units would be produced during overtime with the direct labor costs increasing by 60 percent. Show the following amounts separately; Profit increase from increased sales if there was no changes in price or cost AND profit decrease from reduced selling price of all units AND profit decrease from increased direct labor cost AND explain the change in monthly profit

c.A British distributor has proposed to place a special, one-time order for 1,000 units at a reduced price of $55 per unit. The distributor would pay all transportation costs. There would be additional xed selling and administrative costs of $1,000. Show your computation for the following amounts separately; increase in revenue AND increase in costs for (direct material and direct labor and factory overhead and selling and administrative expenses). Finally, explain the change in profits.

d.A Swiss distributor has proposed to place a special, one-time order for 2,500 units at a special price of $55 per unit. The distributor would pay all transportation costs. There would be additional xed selling and administrative costs of $1,500. Assume overtime production is not possible. Show your computation for the following amounts separately; increase in revenue AND increase in costs for (direct material, direct labor, factory overhead, selling and administrative expenses and opportunity cost). Finally, explain the change in profits.

e.Nantucket Optics provides a designer case for each pair of sunglasses that it manufactures. A Chinese manufacturer has offered a one-year contract to supply the cases at a cost of $4 per unit. If Nantucket Optics accepts the offer, it will be able to reduce variable manufacturing costs by 10%, reduce xed costs by $1,500, and rent out some freed-up space for $2,000 per month.

Nantucket Optics Company manufactures high-end sunglasses that it sells to mail-order distributors for

$60. Manufacturing and other costs foll

P16-33.continued

E)

Create three columns

Cost to Make

Cost to Buy

Difference (Effect of Buying on Income)

Enter in the appropriate column:

1.Cost to buy

2.Cost to make:

a.Raw Materials

b.Direct Labor

c.Variable manufacturing overhead

d.Fixed manufacturing overhead

e.Opportunity cost.

3.Explain the change in Profit.

f.The glasses also come with four different color inserts that allow the user to change the appearance of the glasses to match her or his clothing. Making the glasses in only one color without the color inserts would reduce the cost by $5, and Nantucket Optics believes the selling price would have to decrease to $55

F.Compute the following amounts:

1. Reduction in costs
2. Decrease in revenues:
3. With inserts
4. Without inserts
5. Explain the change in profits.