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The Board of Directors at Aphrian Cannabis Inc. are disappointed because the company has been averaging 9,000 pots per month, but the company can
The Board of Directors at Aphrian Cannabis Inc. are disappointed because the company has been averaging 9,000 pots per month, but the company can make and sell 12,000 pots per month. The variable cost (for example, material) of each pot is $3.50. Monthly fixed costs (for example, depreciation, property taxes, salaries) are $24,000 per month. The Board wants cost information about different volumes so that they can make some operating decisions. Requirements: 1. Fill in the following chart to provide the owner with the cost information he wants. Then use the completed chart to help you answer the remaining questions. (12 marks) Monthly Cannabis Production 6,000 9,000 12,000 S S $ Total Fixed Costs Total Variable Costs Total Costs Fixed Cost per Pot S $ $ Variable Cost per Pot Average Cost per Pot Sales price per Pot $15.00 $15.00 $15.00 Average Profit per Pot 2. From a cost standpoint, why does company such as Aphrian Cannabis Inc. want to operate near or at full capacity? (5 marks) 3. The Board has been considering ways to increase the sales volume. They believe they could sell 12,000 pots a month by cutting the price from $15 a pot to $14.00. How much extra profit (above the current level) would he generate if he decreased the sales price? (Hint: Find the company's current monthly profit and compare it to the company's projected monthly profit at the new sales price and volume.) (8 marks)
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