Ponderosa Manufacturing Ltd produces a single product known as Thingamajig. The Thingamajig has limited demand, which means that even if Ponderosa produces more, they are not able to sell more of the Thingamajig. At present, demand for the Thingamajig is 2,000,000 units per year. Cost information for the Thingamajig for the current year is as follows: The tax rate for Ponderosa Manufacturing Ltd is 30%. REQUIRED: *All workings must be shown* a. Calculate the net profit for Ponderosa for the current year. b. Ponderosa is not operating at capacity and thus is considering adding a new product to its range. The new product is Whatchamacallit. If Ponderosa decides to produce the Whatchamacallit, it will have to reduce Thingamajigs current production by 400,000 units. Demand for Whatchamacallit is expected to be 800,000 units. Production of Whatchamacallit will not have an impact on fixed overhead and marketing costs. Variable marketing costs will still have to be incurred for the Whatchamacallits and will remain the same. Cost information for the Whatchamacallit is as follows: Selling Price $250 per unit Manufacturing costs Direct materials $75 per unit Direct labour $96 per unit Variable overhead $48 per unit Selling Price $185 per unit Manufacturing costs Direct materials $25 per unit Direct labour $64 per unit Variable overhead $32 per unit Fixed overhead $60,000,000 per year Marketing costs Variable $4 per unit Fixed $25,500,000 per year Page 6 of 9 Question two (continued) Calculate the new net profit for Ponderosa if it decides to produce Whatchamacallit together with Thingamajig. Advise Ponderosa if they should go ahead with their plan to introduce Whatchamacallit. Explain the reasons behind your advice. c. Apart from Whatchamacallit, Ponderosa is also considering a third product to add to its product line, a Whosawhatsit. Ponderosa believes that if all three products were sold together total net profit would increase to $36,000,000, and this would require no increase in fixed overhead, fixed marketing costs nor variable marketing cost. Additionally, if all three products were sold together, Ponderosa expects that 50% of the sales would be of Thingamajig, 20% would be of Whatchamacallit and 30% would be of Whosawhatsit. Costs information for the Whosawhatsit is as follows: Selling Price $220 per unit Manufacturing costs Direct materials $62 per unit Direct labour $42 per unit Variable overhead $64 per unit Determine for Ponderosa how many units of each product must be sold in order for them to achieve a net profit of $36,000,000. d. Assume that the sales mix has changed to Thingamajig 30%, Whatchamacallit 50% and Whosawhatsit 20%. Without re-calculating anything, explain what would happen to net profit and why