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 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 %?( 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.
∙ The parchment grade card product line incurred $ 75,000 in development 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 estimated life-cycle operating income for the first year? Please check the attached excel sheet for computations 4.( TCO 8) Sportswear Company manufactures socks. The Athletic Division sells its socks for $ 6 a pair to outsiders. Socks have manufacturing costs of $ 2.50 each for variable and $ 1.50 for fixed. The division ' s total fixed manufacturing costs are $ 105,000 at the normal volume of 70,000 units. The European Division has offered to buy 15,000 socks at the full cost of $ 4. The Athletic Division has excess capacity and the 15,000 units can be produced without interfering with the current outside sales of