Nantucket Optics Company manufactures high-end sunglasses that it sells to mail-order distributors for $60. Manufacturing and other costs follow:

Variable Costs per Unit

Direct materials ......... $ 13

Direct labor............. 12

Factory overhead ....... 2

Distribution ............. 3

Total .................. $30

Fixed Costs per Month

Factory overhead .......... $20,000

Selling and administrative ... 10,000

Total .................... $30,000

The variable distribution costs are for transportation to mail-order distributors. The current monthly production and sales volume is 5,000 units. Monthly capacity is 6,000 units.

Required

Determine the effect of each of the following independent situations on monthly profits. a.

A $2.00 increase in the unit selling price should result in a 1,200-unit decrease in monthly sales.

b. A 10% decrease in the unit selling price should result in a 2,000-unit increase in monthly sales. However, because of capacity constraints, the last 1,000 units would be produced during overtime with the direct labor costs increasing by 60 percent.

c. A British distributor has proposed to place a special, one-time order for 1,000 units at a reduced price of $55 per unit. The distributor would pay all transportation costs. There would be additional fixed selling and administrative costs of $1,000.

d. A Swiss distributor has proposed to place a special, one-time order for 2,500 units at a special price of $55 per unit. The distributor would pay all transportation costs. There would be additional fixed selling and administrative costs of $1,500. Assume overtime production is not possible.