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