Question
One of Phoenix Computer's products is WizardCard. The company currently produces and sells 30,000 WizardCards per month, although it has the plant capacity to produce
One of Phoenix Computer's products is WizardCard. The company currently produces and sells 30,000 WizardCards per month, although it has the plant capacity to produce 50,000 units per month.
At the 30,000 units-per-month level of production, the average per-unit cost of manufacturing WizardCards is $45, consisting of $15 in variable costs and $30 in fixed costs. Phoenix sells WizardCards to retail stores for $90 each.
Computer Marketing Corp. has offered to purchase 10,000 WizardCards per month at a reduced price at 70$. Phoenix can manufacture these additional units with no change in fixed manufacturing costs.
a)Does this make sense for Phoenix? Make an incremental analysis and give reasons for your decision
b)After signing the order Phoenix Computer recognizes, that the print of the logo of Computer Marketing Corp. causes additional $5 variable manufacturing costs per piece. In addition to that they need to rent a special printing machine that costs 300.000$ for the whole production time. As the contract was already signed the agreed selling price of 70$ can not be changed per piece. How does this influences the operating income of Phoenix Computers?
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