ORGANIC DIAPERS VENTURE Currently HBL pays EFD $6.50 per diaper. It has indicated that it is willing to pay a price equal to EFD's direct labor and material costs, plus 35%, up to $8.00 per diaper for organic diapers. It plans to order 5,000 organic diapers a month beginning in April 2020, reducing its non-organic diaper order by 1,000 diapers a month. The material requirements for the organic diapers are the same as for non-organic diapers. Each diaper uses 0.75 meters of cotton and 0.25 meters of absorbent liner. In addition, each diaper requires $0.50 worth of other materials. On average, each sewer can make 15 diapers in an hour, including an allowance for downtime and errors.

Material costs per meter are as follows: Cotton Absorbent liner Non-organic $3.00 $5.00 Organic $4.50 $7.00

Currently, about 30% of EFD's leased space is used for my office and Majidah's office. Additional space will need to be rented for the expansion. The space that Cowaves rented has become vacant. If I move the offices upstairs, there should be enough room in EFD's existing space for the additional machines. Rent in the new space would be $1,000 a month. The space will need to be renovated, at a cost of $10,000.

Additional information

1. Prior to entering into any contract, HBL purchased 2,500 diapers as a trial at the beginning of January 2019. At the end of January 2019, HBL entered into a two-year contract with EFD, effective February 1, 2019, stipulating that HBL must order a minimum of 7,000 diapers per month, with the possibility of purchasing more. HBL did not order more than 7,000 diapers per month except in December 2019.

On December 10, 2019, HBL placed an additional order for 2,500 diapers. The order was ready for shipment on December 20, 2019, when HBL paid for the diapers. However, HBL asked EFD to hold off sending the order until January 15, 2020, at which point the company would have room in its warehouse to accept the diapers. EFD agreed to the delayed delivery; however, it charged HBL a storage fee until the goods were delivered. EFD also moved the order to a different area of the workspace on December 22, 2019, so it wouldn't be mixed up with other production. I recorded the sale in 2020. I pro-rated the storage fee and recorded it to 2019 and 2020 for the periods during which the storage occurred. 3. At the end of the year, there were 4,000 diapers, 200 metres of absorbent liner material, and 2,000 metres of cotton on hand. This does not include the 2,500 diapers that EFD was holding for HBL.

2. Salaries consist of $40,000 paid to Tanisha and $15,000 paid to Majidah.

3. Tanisha pays her employees $12 per hour, and each shift runs eight hours a day. Production runs on weekdays only

4. During the year, two sewing machines were purchased, each for $1,500, with an expected useful life of five years.

The company wants to migrate from producing non-organic diaper to organic diapers. With an operating statement, show whether the organic diapers are profitable or not, and whether the company should go ahead with the migration.