Question B only

Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves at the company's normal volume of 6,000 units per month are shown in the following table. $ 58 83 33 68 Unit manufacturing costs Variable materials Variable labor Variable overhead Fixed overhead Total unit manufacturing costs Unit marketing costs Variable Fixed Total unit marketing costs Total unit costs $ 242 33 78 111 $ 353 Unless otherwise stated, assume that no connection exists between the situation described in each question; each is independent. Unless otherwise stated, assume a regular selling price of $386 per unit. Ignore income taxes and other costs that are not mentioned in the table or in the question itself. a. Market research estimates that volume could be increased to 7,000 units, which is well within production capacity limitations if the price were cut from $386 to $341 per unit. Assuming that the cost behavior patterns implied by the data in the table are correct. a-1. What would be the impact on monthly sales, costs, and income? a-2. Would you recommend taking this action? b. On March 1, the federal government offers Davis a contract to supply 1,000 units to military bases for a March 31 delivery. Because of an unusually large number of rush orders from its regular customers, Davis plans to produce 8,000 units during March, which will use all available capacity. If it accepts the government order, it would lose 1,000 units normally sold to regular customers to a competitor. The government contract would reimburse its "share of March manufacturing costs" plus pay a $42,000 fixed fee (profit). (No variable marketing costs would be incurred on the government's units.) Assuming that the government's "share of March manufacturing costs" will be the proportionate fixed manufacturing cost, what impact would accepting the government contract have on March income? Without Government Contract Impact With Government Contract Regular Government Total Revenue Variable manufacturing costs Variable marketing costs Contribution margin Fixed manufacturing costs Fixed marketing costs Income