Superior Views is a manufacturer of binoculars. Its high-end product is available online and is also sold at select retail outlets. The binoculars sell for an average price of $310. Superior currently produces and sells 15,000 sets of binolucars each month. Manufacturing capacity is 20,000 sets per month. Fixed costs per month Factory overhead Selling and administrative expenses Total Selling Price Current product Capacity 310 15,000 20,000 $450,000 375,000 $825,000 Variable costs per set Direct materials $80 Direct labor Factory overhead Distribution 50 35 10 $175 The distribution costs are to transport product to retail outlets. REQUIRED: Consider the effects of the changes presented in each of the following independent scenarios. What effect would the changes have on monthly profit and/or which decision should be made? Show the calculations, using the functionality of Excel, to support your answers. You may insert extra lines in the spreadsheet as needed. HINT: You probably want to consider initial contribution margin as a baseline. 1 If the selling price is increased by $50 per set, Superior projects that it will sell 2,000 fewer sets per month. New Selling Price 2 New Unit Sales 360 13,000 Before Change After Change Difference Sales 4,650,000 4,680,000 MD Less Variable Costs 2,625,000 Contribution Margin 2,025,000 2,275,000 2,405,000 Less Fixed Costs Profit $825,000 1,200,000 825,000 1,580,000 380,000 If the selling price is decreased by 10% per set, Superior projects that it will sell 6,000 more sets per month. Because of the factory capacity limits, however, 50% overtime pay would have to be added to direct labor on the last 1,000 sets. New Selling Price New Unit Sales Direct Labor O/T 279 21,000 75 4,650,000 2,625,000 Sales Less Variable Costs Before Change After Change Difference 5,859,000 3,575,000 Contribution Margin 2,025,000 2,284,000 Less Fixed Costs $825,000 $825,000 Profit 1,200,000 1,459,000 259,000 3 Superior is considering a special order to a Canadian distributor in a different market. The proposed order is for 1,000 sets of binoculars at $250 per set. The distributor would cover the transportation costs, but $750 of additional administrative costs would be incurred to fill the order.