Fixed Variable Months 1-4 Design costs 625,000 Months 5-36 Production 14,000 $280 per desk Marketing 2,600 Distribution 2,500 $20 per desk Months 37-52 Production $ 14,000 $280 per desk Marketing 1,300 Distribution 1,800 $22 per desk The design cost is for the total period of four months. The fixed costs of production, marketing, and distribution are the expected costs per month. Ignore time value of money. 1. Assume FFM expects to make and sell 17,920 units in the first 32 months (months 5-36) of production (560 units per month) and 6,000 units (375 per month) in the last 16 months (months 37 - 52) of production. If FFM prices the desks at $475 each, how much profit will FFM make in total and on average per desk? 2. Suppose FFM is wrong about the demand for these executive desks, and after the first 36 months it stops making them altogether. It sells 17,920 desks for $395 each with the costs described for months 5-36, and then incurs no additional costs and generates no additional revenue. Will this have been a profitable venture for FFM? 3. Will your answer to Requirement 2 change if FFM still must incur the estimated fixed production costs for the whole period through month 52, even if FFM stops making executive desks at the end of 36 months? Fitchburg Furniture Manufacturing (FFM) has been manufacturing furniture for the home for over 30 years. George Fearless, the owner, has decided he would like to manufacture an executive desk that contains space for not only a laptop dock but also an MP3 player dock. Based on his experience with furniture, he believes the desk will be a popular item for four years, and then will be obsolete because technology will have changed again. FFM expects the design phase to be very short; maybe four months. There is no R&D cost because the idea came from George, without any real research. Also, fixed production costs will not be high because FFM has excess capacity in the factory. The FFM accountants have developed the following budget for the new executive desk: E: (Click to view the budget.) Requirements Requirement 1. Using the assumptions given for this requirement, if FFM prices the desks at $475 each, how much profit will FFM make in total and on average per desk? Begin by calculating the total profit FFM will make. (Enter operating losses with parentheses or a minus sign.) Projected Life Cycle Statement of Comprehensive Income Revenues Variable costs: Production Distribution Contribution margin Fixed costs: Design Production Marketing Distribution Life cycle operating income (loss) FFM will make an average profit of $ per desk. (Round your answer to the nearest cent.) Requirement 2. Assume that FFM sells 17,920 desks for $395 each with the costs described for months 5-36, and then incurs no additional costs and generates no additional revenue. Will this have been a profitable venture for FFM? First calculate the new life cycle operating income. (Enter operating losses with parentheses or a minus sign.) Projected Life Cycle Statement of Comprehensive Income Revenues Variable costs: Production Distribution Contribution margin Fixed costs: Design Production Marketing Distribution Life cycle operating income (loss) Given the new scenario, will this have been a profitable venture for FFM? Enter any number in the edit fields and then continue to the next ques Yes No Requirement 3. Let's begin by determining the operating income if FFM still must incur the estimated fixed production costs for the whole period through month 52, even if FFM stops making executive desks at the end of 36 months. (Enter operating losses with parentheses or a minus sign.) Life cycle operating income (loss) under Requirement 2 Additional fixed costs incurred Revised life cycle operating income Based on above, will your answer to Requirement 2 change if FFM still must incur the estimated fixed production costs for the whole period through month 52, even if FFM stops making executive desks at the end of 36 months? if FFM continues to incur the fixed production costs for the full 48 months. E No the answer does not change then continue to the next question. Yes the answer does change