Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

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

An article in the wall street journal discussing how oil

An article in the Wall Street Journal discussing how oil prices tend to rise during the spring observes, "Hedge funds and other speculative traders often hitch a ride on a rally that has become almost an annual tradition ...

Identify possible misrepresented statisticspoliticians

Identify possible misrepresented statistics Politicians, businesspeople, and others love to quote statistics to support their viewpoints. Locate three news stories in which someone quotes statistics to support a particul ...

Grind co is considering replacing an existing machine the

Grind Co. is considering replacing an existing machine. The new machine is expected to reduce labor costs by $153,000 per year for 5 years. Depreciation on the new machine is $124,000 compared with $86,000 on the old mac ...

What would be the cumulative scatter of the four variables

What would be the cumulative scatter of the four variables we used in the Figures 17.2 through 17.7 if we combined them arithmetically? How does this compare with the scatter computed in the text using the square root of ...

What are inventories briefly explain what happens to the

What are inventories? Briefly explain what happens to the level of inventories when aggregate expenditure is greater than real GDP, what happens when aggregate expenditure is less than real GDP, and what happens when agg ...

After reading the information contained on the web site

After reading the information contained on the Web site www.moneycrashers.com/ five-steps-to-effective-budgeting/, answer the following questions: a. What are three good sources of information that can be accessed to beg ...

Budgetsmith manufacturing inc has asked for your assistance

Budget Smith Manufacturing, Inc. has asked for your assistance in preparing a budget for next year's operations. Take a few moments to consider where you would begin the budgeting process.What types of information do you ...

Dealer quotes a rate of 5 on this fra and the end user

Dealer quotes a rate of 5% on this FRA and the end user agrees. The expiration date is in 90 days. The notional amount is $3,000,000. The underlying interest is the 180 LIBOR time deposit. In 90 days the 180-day LIBOR is ...

Explain the analogy relating irrigation flows to flows of

Explain the analogy relating irrigation flows to flows of funds in the financial system. What happens to a farmer when irrigation water dries up? What happened to businesses in the United States when the flow of funds dr ...

Wat is the resilience of the bolts and joint this time

What is the resilience of the bolts and joint this time? What is the stiffness ratio of this eccentric joint? By how much does the tensile load of 7.40 kips increase the tension in the bolts and reduce the clamping force ...

  • 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

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen