Molly Company has a single product called a lifter. The company currently produces and sells the following quantity of lifters each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below: Volume Production/ Sales 60,800 lifters Selling Price Selling Price Less: Variables expenses 32.00 32.00 Direct materials 10.00 Direct materials $ 10.00 Direct labour 4.50 Direct labour Variable manufacturing overhead Fixed manufacturing overhead Variable Selling expenses Fixed selling expenses 4.50 2.30 Variable manufacturing overhead Variable Selling expenses Contribution margin per unit 18.00 $14.00 2.30 1.20 5.00 $ 304,000 total 1.20 3.50 $ 212,800 total 26.50 A number of questions relating to the production and sale of lifters follow. Each question is independent. Required: 1. Assume that Molly Company has sufficient capacity to produce 90,000 lifters each vear without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the current quantity of units each year if it were willing to increase the fixed selling expenses by $80,000. Determine the effect on operating income of this proposal. 90,000 lifters 60,800 lifters Total production capacity Current volume of production and sales Increase in sales 25% Fixed selling expenses increase 24 80.000 Increase sales in units Contribution margin per unit Incremental contribution margin 22,500 14 315,000 80,000 Fixed seiling expenses increase Increase (decrease) in Operating Income 235,000 33 2. The company has 1,000 lifters on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. 34 35 What unit cost figure is relevant for setting a minimum selling price? 36 37 Briefly explain. 38 39 40 41