Marquette Manufacturing produces “invisible” electric dog fences, sold through retail locations nationwide. The selling price of the fence is $150 per unit. The cost to manufacture and market the fences is shown below. These figures represent the cost at the company’s normal volume of 3,000 units per month.Unit Manufacturing Costs Variable materials $ 15.00 Variable labor $ 17.50 Variable overhead $ 12.50 Fixed overhead $ 16.00 Total unit manufacturing costs $ 61.00Unit Marketing Costs Variable $ 12.00 Fixed overhead $ 17.00 Total unit marketing costs $ 29.00 Total unit costs $ 90.00 The company’s marketing team estimates that sales volume could be increased to 5,000 units per month if the sales price was lowered from $150 to $125 per unit. The production manager has confirmed that they have the capacity to increase production to this level. Assume that the cost pattern will not vary at the increased level of production. If management decreases the price, what would the impact on monthly sales, income and costs be? For each figure, indicate whether the change will result in an increase, decrease or no change in the sales, income and cost. Would you recommend the reduction in sales price? Why or Why not? (Show all supporting calculations).

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Answered: The company’s marketing team estimates…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 2PB: Five Card Draw manufactures and sells 10,000 units of Aces, which retails for $200, and 8,000 units...

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Marquette Manufacturing produces “invisible” electric dog fences, sold through retail locations nationwide. The selling price of the fence is $150 per unit. The cost to manufacture and market the fences is shown below. These figures represent the cost at the company’s normal volume of 3,000 units per month.

Unit Manufacturing Costs
	Variable materials	$ 15.00
	Variable labor	$ 17.50
	Variable overhead	$ 12.50
	Fixed overhead	$ 16.00
Total unit manufacturing costs			$ 61.00
Unit Marketing Costs
	Variable	$ 12.00
	Fixed overhead	$ 17.00
Total unit marketing costs			$ 29.00
	Total unit costs		$ 90.00

The company’s marketing team estimates that sales volume could be increased to 5,000 units per month if the sales price was lowered from $150 to $125 per unit. The production manager has confirmed that they have the capacity to increase production to this level. Assume that the cost pattern will not vary at the increased level of production. If management decreases the price, what would the impact on monthly sales, income and costs be? For each figure, indicate whether the change will result in an increase, decrease or no change in the sales, income and cost. Would you recommend the reduction in sales price? Why or Why not? (Show all supporting calculations).

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