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FairLinks Golf Corporation manufactures golf clubs, balls, and other equipment. The companys latest design for a driver, the Annihilator, caught the attention of several PGA

FairLinks Golf Corporation manufactures golf clubs, balls, and other equipment. The companys latest design for a driver, the Annihilator, caught the attention of several PGA Tour professionals, who raved about its performance publicly (without an endorsement deal in place). The driver, made of vibranium, is lighter than any other driver on the market but generates more force for the average golfer than its counterparts.

At the beginning of the year, FairLinks management team developed the following master budget for the Annihilator line:

Master Budget

Annihilator

Sales (# of clubs)

5,000

Sales price per club

$280

Material costs:

Vibranium

1,000 grams @ $0.06 per gram

$60

Graphite shaft

1 per club @ $8

$8

Rubber grip

1 per club @ $10

$10

Labor costs:

3 hours @ $20/hr

$60

Fixed costs (for the year)

$250,000

After seeing these numbers, the companys CEO Cheryl Ford wondered if there was a way to increase profit from the exciting new line and capitalize on the momentum it had gained in the golfing community. She had two ideas: 1) reduce the selling price to $245, which she believed would substantially increase sales, or 2) rent a new grinding machine for the coming year. The rental would cost $50,000 for the year, but would hopefully reduce materials waste and labor time associated with making each Annihilator. That is, since each one weighed just 350 grams, Cheryl wanted to find a way to reduce the 650 grams (1,000 350) of vibranium and other materials that were wasted in the production process, and that doing so would also reduce the time needed to fabricate each club.

Cheryl implemented both ideas, and at the end of the year, the actual results were as follows:

Actual Results

Annihilator

Sales (# of clubs)

5,600

Sales price per club

$245

Material costs:

Vibranium

700 grams @ $0.06 per gram

$42

Graphite shaft

1 per club @ $8

$8

Rubber grip

1 per club @ $12

$12

Labor costs

2.5 hours @ $20/hr

$50

Fixed costs (for the year)

$300,000

  1. What was the actual profit for the most recent year?

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