Question
Sunder Corp. makes two main products in its factory in Birmingham, Alabama. Because of intense competition for standardized products, particularly from overseas firms, Sunder Corp.
Sunder Corp. makes two main products in its factory in Birmingham, Alabama. Because of intense competition for standardized products, particularly from overseas firms, Sunder Corp. is considering switching its emphasis to custom-made products. The following data pertain to the firm's current operations: Standard products Custom products Sales price per unit $130 $175 Variable costs per unit $65 $70 Contribution margin per unit $65 $105 Fixed costs per unit $40 $40 Profit per unit $25 $65 Machine hours per unit 2 4 Number of units 75,000 25,000 Sunder believes that, with suitable marketing, it can change its product mix to be 50,000 units each of the Standard and Custom products in 2022. Sunder Corp. currently allocates its fixed costs based on the number of machine hours. She has asked you, the firm's cost accountant, to estimate the firm's total profit for 2022 if the company allocates its fixed costs based on machine hours going forward.
Using the number of machine hours to project the firm's change in capacity costs, estimate Sunder Corp.'s total profit for 2022 with the proposed product mix.
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