Ask Question, Ask an Expert


Ask Basic Finance Expert

Calibrated Manufacturing makes an electronic component that is in great demand. The component sells for $20 each. Calibrated's current capacity is 10,000 units per week. For the last few months, however, the company has been receiving new orders at a rate of 14,000 units per week, and now has a substantial backlog. The company expects this order rate to continue, if it maintains price. Calibrated's current operating data follows:
Sales Revenue $200,000
Variable Costs $100,000
Fixed Costs $80,000
Pretax Profit $20,000

For each incremental addition of 500 units of output weekly, Calibrated would need to purchase new equipment that would add $1,500 to weekly fixed costs.
No other fixed costs would become incremental for this price change.
Labor costs currently account for half of all variable costs.
Additional hires, however, are expected to be more costly than the average of current employees because of their lower productivity.

Although new hires are paid (wages + fringe benefits) only 80% of the current average, they can produce only two-thirds as much output per hour.

Consequently, labor costs for additional output with new hires is 20% higher than the current average.
Calibrated is debating whether to keep its current price and expand to meet the demand or to raise its price to reduce demand somewhat before deciding whether or not to expand.
1. How much would Calibrated's weekly profits increase if it expanded to meet the entire amount of its current excess demand?

2. Prepare an analysis of a 10% price increase find out the break-even sales quantity (percent and units) find out the new $ contribution margin per unit.

3. What risks might be to Calibrated of increasing price to maximize profit?

4. What risks might there be to Calibrated of expanding output rather than reducing demand through a price increase?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M926054

Have any Question? 

Related Questions in Basic Finance

How do reits differ from other mutual fundsare all reits

How do REITs differ from other mutual funds? Are all REITs pretty much the same? What are their differences?

In june 2010 john pays 9800 for a one- year t-bill that can

In June 2010, John pays $9,800 for a one- year T-bill that can be redeemed for $10,000. What is the amount of interest earned? What is the yield?

Case study - john simpsonbackgroundjohn has been a

Case study - John Simpson Background John has been a self-employed carpenter for 10 years, and operates his business under a company structure. He has approached you for help in arranging finance for a potential purchase ...

1 a 3 year-bond is paying a coupon rate of 10 per year

1. A 3 year-bond is paying a coupon rate of 10% per year semi-annually. The par value of the bond is R1000 and the annual market interest rate is 8%. a) Calculate the price of the bond today and 6 months from now after p ...

Identify a sample of food companies for example you could

Identify a sample of food companies. For example, you could try Campbell Soup (CPB), General Mills (GIS), Kellogg (K), Kraft Foods (KFT), and Sara Lee (SLE). a. Estimate beta and R2 for each company, using five years of ...

Changes in money were more highly correlated with changes

Changes in money were more highly correlated with changes in nominal GDP than with changes in either real GDP or inflation. Does this finding support or refute monetarism? Explain.

Write a corporate management report in which you present a

Write a corporate management report in which you present a valuation model for a proposed new issuance of corporate bonds with a face value of $70 million dollars. The report should include numerical illustrations within ...

The fed and long-term treasury securities why did the fed

The Fed and Long-term Treasury Securities : Why did the Fed purchase long-term Treasury securities in 2010, and how did this strategy differ from the Fed's usual operations?

Davenport corporations last dividend was 700 and the

Davenport Corporation's last dividend was $7.00 and the directors expect to maintain the historic 3 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase ...

Assignment time value of moneywhen the genesis energy and

Assignment: Time Value of Money When the Genesis Energy and Sensible Essential teams held their weekly meeting, the time value of money and its applicability yielded an extremely stimulating discussion. However, most of ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate