Irish Bags Ltd. produces a single type of travel case which it sells exclusively on the British market. Its projected profit and loss account for 2009 is as follows:- Sales 400,000 unit at 4 each 1,600,000 Materials 200,000 square metres at El each 200,000 Direct labour 100,000 hours at 4 per hour 400,000. Variable factory overhead (25% of direct labour) 100,000 Fixed factory overhead 300,000 Variable selling expenses 80,000 220,000 1,300,000 300,000 Fixed selling expenses Net profit The practical attainable capacity of the plant is 120,000 direct labour hours per year (480,000 units), but the demand for the product is 400,000 units. The managing director of the company is considering launching a de luxe version of the product on the US market. Sales in this market will not affect existing sales in any way. The following data has been collected in respect of the de luxe version of the product:- Annual sales would be 200,000 units at a price of 10 per unit. The product would require 5% more material than the existing product. The time required to manufacture the new product would be twice that required to produce the existing product. (i) (ii) (iii) (iv) (v) (vi) Variable selling expenses would be 20% of the selling price. (vii) Variable factory overhead would be 25% higher for the new product. Fixed factory overhead would increase by 100,000 per year. Advertising and distribution costs in the American market would be 100,000 per year. Required: (a) Prepare a report which will assist the managing director in assessing the desirability of launching the new de luxe version of the product in the US market. All your workings should be clearly shown. (b) Discuss how uncertainty regarding demand in the US market could be incorporated into the managing director's analysis. (Calculations are not required).