Question
Goodman Company has an expected production rate of 2,000 units of QSteamer per month and only one production line is in use. The company's accountant
Goodman Company has an expected production rate of 2,000 units of QSteamer per month and only one production line is in use. The company's accountant reports the costs of manufacturing given in Table 2. Items Direct materials Direct manufacturing labour Manufacturing overhead Allocated fixed company administration and insurance Fixed cost of one production line in use Table 2 Cost $17 per unit $8 per unit $3 per unit $2,700 per month $600 per month (a) If the unit selling price is $45, determine the marginal contribution and the monthly breakeven volume of sales, in integer. (3 marks) (b) Suppose the company uses a new production line, which increases the productivity to 3,000 units per month. However, it requires fixed cost of $750 per month and 30% increase of the direct labour. If the company wants to have a profit of $5,000 in selling the 3,000 units, justify if the company need to change the unit selling price. (5 marks) (c) Now, there is a customer who orders 2,000 units in a month at unit price $45. However, at the middle of the month when the company has already produced 1,500 units by the current production line, the customer proposes an extra demand of 700 units in the same month. At this moment, the company has 3 options: 1) start up one more production line, which is same as the current production line, to meet the extra demand; 2) shift the rest of manufacturing to the new production line to meet the exact units ordered in the month; 3) reject the extra order and keep on the original production units. Justify which option should be chosen by estimating marginal profit. (7 marks)
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