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Decision Making: Relevant costs and Benefits (HP 14) Weems Inc. manufactures and sells two types of shape-changing stuffed animals, the Batfish and the Vampire Squid.
Decision Making: Relevant costs and Benefits (HP 14) Weems Inc. manufactures and sells two types of shape-changing stuffed animals, the Batfish and the Vampire Squid. Lately, the demand for Batfish has gone up and Larissa (the President of Weems Inc.) is considering discontinuing the production of the Vampire Squid, so that she has more capacity to manufacture Batfish. The following pertains to her expected coasts for 2023: Batfish Vampire Squid Expected units to be manufactured and sold 420,000 200,500 Sales price per unit $ 11.00 $ 12.75 Variable cost per unit 5.00 7.25 Fixed Costs 84,609 40,391 If the sale and manufacturing of Vampire Squid is discontinued, the entire production process will be devoted to the manufacturing and sales of Batfish. Larissa would launch an advertising campaign costing an additional $100,000 to promote the Batfish. Further, Larissa plans on embossing each Batfish with her company logo "Shape Changer" to differentiate her Batfish from other Batfish on the market, at an additional cost of $0.15 per Batfish. She expects that the new logo and advertising campaign will increase by 50% Batfish sales. The costs of the new advertising campaign and the costs of embossing are incurred, of course, only if she decides to discontinue the sale and manufacturing of Vampire Squid. Larissa's only fixed cost is her store location, which costs her $125,000 per year, which she allocates across Batfish and Vampire Squid based on units sold. She would still incur the $125,000 cost for the store, even if she discontinued the Vampire Squid, thus the entire cost of the store would be allocated to Batfish. Required: Determine the income or loss from the elimination of Vampire Squid sales
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