Ivanhoe Design Inc., a high-fashion womens dress manufacturer, is planning to market a new cocktail dress for the coming season. Ivanhoe Design supplies retailers in Toronto, Montreal, and the Atlantic provinces.

Four metres of material are laid out for the dress pattern. After cutting, some material remains, which can be sold as remnants. The company could also use the leftover material to manufacture a matching cape and handbag. However, if it uses the leftover material for the cape and handbag, more care will be needed in the cutting, and the cutting costs will therefore increase.

The company expects to sell 1,400 dresses if a matching cape and handbag are not available. Ivanhoe Designs market research reveals, however, that dress sales would be 25% higher if a matching cape and handbag were available. The market research indicates that the cape and/or handbag could not be sold individually but only as accessories with the dress. The various combinations of dresses, capes, and handbags that retailers will sell are as follows:

Complete sets of dress, cape, and handbag 70% Dress and cape 6% Dress and handbag 14% Dress only 10% Total 100%

The material used in the dress costs $13.00 a metre, or $51.00 for each dress. The cost of cutting the dress if the cape and handbag are not manufactured is estimated at $20.00 a dress, and the resulting remnants can be sold for $5.00 for each dress cut out. If the cape and handbag are to be manufactured, the cutting costs will be increased by $9.00 per dress. There will be no saleable remnants if the capes and handbags are manufactured in the quantities estimated.

The selling prices and the costs to complete the three items once they are cut are as follows:

Selling Price per Unit Unit Cost to Complete* Dress $205.00 $81.00 Cape 28.00 20.00 Handbag 10.00 7.00 * Excludes cost of material and cutting.

Calculate operating income if only the dress is cut and sold. Operating income $enter the operating income in dollars

Calculate operating income if the dress and accessories are produced and sold. (Round answer to 0 decimal places, e.g. 125.) Operating income $enter the operating income in dollars rounded to 0 decimal places

Calculate incremental profit. (Round answer to 0 decimal places, e.g. 125.) Incremental profit $enter the incremental profit in dollars rounded to 0 decimal places

Based on your analysis, what decision should management make? Management should select a decision .