Question: Prepare the budgeted 2007 income statement for Ever Last Ovenware that the production, quality, and product managers considered when they discussed the first option available to them.
a. Under that option, shipment would be delayed and about one third of the year's sales of 6,000,000 units would be lost.
b. Product would be sold at the 10% price reduction but produced under the old cost structure for six months (variable production costs of $5.55 per unit). After the six months the variable cost savings of 35% would be achieved.
c. Assume that recycling the current production would add $500,000 to the fixed production costs originally budgeted for 2007. In addition, the product line will incur an additional $2,000,000 in design engineering to solve the problem within a 6-month period (this will involve the use of overtime and consultants).
d. Other cost items would stay as originally budgeted for 2007. What would the product line's profit be under this alternative? What would the return on sales for the product line be?