Question
Data for all questions: Daves Desks produces wooden desks. Their desks are designed for elementary and middle schools, and therefore, schools are their largest customers.
Data for all questions: Daves Desks produces wooden desks. Their desks are designed for elementary and middle schools, and therefore, schools are their largest customers. The cost of manufacturing and marketing their desks, at their normal factory volume of 300 desks per month, is shown in the table below. These desks sell for $99 each. Daves Desks is making a small profit, but would prefer to increase profitability.
Note: Fixed costs are shown on a per-unit basis in the table based on normal volume. However, fixed costs as a total do not change when volume changes, so you will need to determine total fixed costs first.
Unit manufacturing costs: Variable materials $15 Variable labor $30 Variable overhead $20 Fixed overhead $15 Total unit manufacturing cost $80 Unit marketing costs: Variable marketing costs $10 Fixed marketing costs $5 Total unit marketing costs $15 Total Unit Costs $95
Question: Research has shown that there is a need for science lab desks in the market. Daves Desks would be able to produce science lab desks on their existing assembly line if they purchased a new machine to produce the more durable desk top. This would increase fixed overhead costs by $3,000 per month (still based on normal production volume of 300 units). In addition, the variable materials costs (not all variable costs just variable material costs) for the science lab desks would be double the cost of the variable materials for the regular desks. Maximum production for both types of desks together would still be 600 units because the same assembly line would be used. The science lab desks would sell for $139 each.
A) What would be the break-even point if Daves Desks only sold science lab desks?
B) Create a contribution income statement for a month in which Daves Desks sold 250 regular desks, and 150 science lab desks.
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