ompete. Marketing believes that the new price will increase sales by 25 % a year. The plant manager thinks that production can increase b y 25 % with the same level of fixed costs. The company sells all the D eluxe beds it can produce. Question 1: What is the annual operating income from Deluxe at the price of $ 5,000? Question 2: What is the annual operating income from Deluxe if the price is reduced to $ 4,000 and sales in units increase by 25 %?( Points: 25) Question 1:
( TCO 7) Mercy Greeting Cards Incorporated is starting a new busine ss venture and is in the process of evaluating its product lines. Inform ation for one new product, traditional parchment grade cards, is as fo llows:
∙ For 16 times each year, a new card design will be put into produc tion. Each new design will require $ 100 in setup costs.
∙ The parchment grade card product line incurred $ 75,000 in devel opment costs and is expected to be produced over the next four years.
∙ Direct costs of producing the designs average $ 0.50 each.
∙ Indirect manufacturing costs are estimated at $ 50,000 per year.
∙ Customer service expenses average $ 0.10 per card.
∙ Current sales are expected to be 2,500 units of each card design. Each card sells for $ 3.50.
∙ Sales units equal production units each year. What is the total estimated life-cycle operating income? 4.( TCO 8) Motormart Company manufactures automobiles. The red ca r division sells its red cars for $ 25,000 each to the general public. Th e red cars have manufacturing costs of $ 12,500 each for variable and $ 5,000 each for fixed costs. The division ' s total fixed manufacturing c osts are $ 25,000,000 at the normal volume of 5,000 units. The blue car division has been unable to meet the demand for its cars this year. It has offered to buy 1,000 cars from the red car division at the full cost of $ 16,000. The red car division has excess capacity and the 1,000 units can be produced without interfering with the outside s