The Lydek Company, located in New England, produces aspirin. Lydek markets their aspirin under the brand name Cayer Aspirin. Sales are currently 100,000 bottles per month at a price of $6.00 per bottle. This price includes a twenty percent markup on the cost of production as shown in Exhibit A.
Exhibit A
Labor cost / unit $2.00
Material cost / unit .40
Spoilage / unit .10
Packaging cost / unit 1.00
Fixed overhead / unit 1.50
Total Cost $5.00
Plus 20% markup 1.00
Price $6.00
Newbury Drug has recently offered to purchase 25,000 bottles of aspirin that they will sell in their stores under a generic label. Newbury has offered to pay $3.95 for each bottle of aspirin. The controller of Lydek in analyzing the offer has determined that to fill this order would require that direct labor be paid ten per cent more for the extra production. In addition, Lydek will qualify to receive a twenty percent discount on all materials if they produce the generic aspirin. Lydek has also determined that both the plant supervisor and plant manager must each be paid a bonus of $1000 for the extra effort that they will expend. It is expected that the generic brand aspirin will reduce Cayer Aspirin sales from their current level of 20,000 units in Newbury's stores to 18,000 units per month. Given this information answer the following questions:
Carry your answers out to the final decimal value. You may include a $ if you want or not. You may also enter answers as per unit or total values.
A) If Lydek produces the generic aspirin for Newbury what will be the Incremental Cost unadjusted (IC), Value of the adjustments (ADJ), Incremental Revenue of the offer (IR) and Incremental Profit (IP).