Davis Kitchen Supply produces stoves for commercial Kitchens. The costs to manufacture and market the stoves at the company's normal volume of 6.000 units per month are shown in the following table: 5 58 83 68 Unit manufacturing costs Variable materials Variable labor Variable overhead Fised overhead Total unit manducturing ou Unit marketing costs Variable Fbed Total nil marketingos Total unit costs S 242 33 78 111 $ 353 Unless otherwise stated, assume that no connection exists between the situation described in each question, each is independent. Unless otherwise stated, assume a regular selling price of $3es per unit ignore Income taxes and other costs that are not mentioned in the table or in the question itself Required: a. Market research estimates that volume could be increased to 7,000 units, which is well within production capacity limitations if the price were out from $356 to $341 por unit. Assume that the cont behavior pattoms implied by the data in the table are correct. 3-1. What would be the impact on monthly sales, costs, and income? (Select option "increases" or "decrease", keeping pesce before reduction as the base. Select "none" if there is no effect) Sales price Quantity Revenue Variable manufacturing costs Variable marketing costs Contribution margin Fored manufacturing costs Ford marketing contes Income Before Price Reduction After Price Reduction lenpact 5 386s 341 6,000 7.000 5 2.316,000 $ 2,387,000 $ 71,000 race 1,044,000 1.218 000 174.000 increase 198,000 231.000 33 OCO 1,074,000 938.000 (136.000) decrease 408,000 408,000 O nome 468,000 40 000 5 196,000 5 12.000 3 000, Secrease a-2. Would you recommend taking this action? Yes O No b. On March 1, the federal government offers Davis a contract to supply 1,000 units to mitary bases for a March 31 delivery, Because of an unusually large number of rush orders from its regular customers, Davis plans to produce 1,000 units during March, which will use all available capacity. If it accepts the government order, it would lose 1.000 units normally sold to regular customers to a competitor. The government contract would reimburse its "share of March manufacturing costs" plus pay a $42,000 fixed fee (profit). (No variable marketing costs would be incurred on the government's units.) Assuming that the government's "share of March manufacturing costs will be the proportionate fixed manufacturing cost, what impact would accepting the government contract have on March Income? Without Government Contract Impact With Government Contract Regular Government Total $ 267.000 Revenue Variable manufacturing 2016 Variable marketing costs Contribution mingin Fixed manufacturing costs Fixed marketing costs Income c. Davis has an opportunity to enter a highly competitive foreign market. An attraction of the foreign market is that its demand is greatest when the domestic market's demand is quite kw, thus, idle production facts could be used without affecting domestic business. An order for 2,000 units is being sought at a below-normal price to enter this market. For this order, shipping costs will total S48 per unit; total (marketing costs to obtain the contract will be $2,000. 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 Davis should consider for this order of 2.000 units? Minimum unit price S 223
