25 . ( TCO 12 ) Liberty Celebrations , Inc ., manufactures a line of flags . The annual demand for its flag display is estimated to be 100,000 units . The annual cost of carrying one unit in inventory is $ 1.60 , and the cost to initiate a production run is $ 30 . There are no flag displays on hand but Liberty had scheduled 60 equal production runs of the display sets for the coming year , the first of which is to be run immediately . Liberty Celebrations has 250 business days per year . Assume that sales occur uniformly throughout the year and that production is instantaneous . If Liberty Celebrations does not maintain a safety stock , the estimated total carrying cost for the flag displays for the coming year is the estimated total setup cost for the flag displays for the coming year is ( Points : 5 ) ( TCO 5 ) Robert ' s Medical Equipment Company manufactures hospital beds . Its most popular model , Deluxe , sells for $ 5,000 . It has variable costs totaling $ 2,800 and fixed costs of $ 1,000 per unit , based on an average production run of 5,000 units . It normally has four production runs a year , with $ 400,000 in setup costs each time . Plant capacity can handle up to six runs a year for a total of 30,000 beds . A competitor is introducing a new hospital bed similar to Deluxe that will sell for $ 4,000 . Management believes it must lower the price to compete . Marketing believes that the new price will increase sales by 25 % a year . The plant manager thinks that production can increase by 25 % with the same level of fixed costs . The company currently sells all the Deluxe beds it can produce . Question 1 : What is the annual operating income from Deluxe at the current 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 %? Sales ( 25,000 x $ 4,000 ) $ 100,000,000 ( TCO 7 ) Grace Greeting Cards Incorporated is starting a new business venture and are in the process of evaluating its product lines . Information for one new product , traditional parchment grade cards , is as follows :
∙ Sixteen times each year , a new card design will be put into production . Each new design will require $ 600 in setup costs .