Calculate the estimated profit, Managerial Economics

Blowing Safety Co. P/L manufactures safety parachutes for the airline industry. These are sold directly to the airline companies. Management expects to manufacture and sell around 90,000 parachutes for 2010; the selling price for each parachute to be $425.00 each. The direct material cost per parachute is $145.00.

The company estimates, based on historical data that there will be around 1150 orders for the year from their 95 customers and will involve producing 240 batches of parachutes.

The company introduced Activity-based costing in 2008 and the following activities and costs have been identified.

ACTIVITY

LEVEL OF ACTIVITY

ESTIMATED COSTS

Production-related costs

 

 

Production design

Product

$35,000

Production design

Batch

$110.00 per batch

Moving materials to cutting area

Batch

$85.00 per batch

Cutting machines set-up

Batch

$140.00 per batch

Moving materials to sewing area

Batch

$90.00 per batch

Sewing machines set-up

Batch

$110.00 per batch

Cutting pattern

Unit

$25.00 per unit

Stitching

Unit

$60.00 per unit

Waterproofing

Unit

$45.00 per unit

Inspection

Unit

$18.00 per unit

Packaging

Unit

$9.00 per unit

 

 

 

Sales-related costs

 

 

Processing customer order

Order

$55.00 per order

Distribution

Order

$275.00 per order

Sales calls

Customer

$460.00 per order

Handling customer complaints

Customer

$115.00 per order

Advertising

Market

$40,000

 

 

 

Other Operational costs

 

 

Administration

Company

$295,000

Assignment requirements.

  1. Develop a spreadsheet and calculate the estimated profit for 2010.
  2. Calculate the number of parachutes the company would need to sell in order to break even.
  3. How many parachutes would the company need to sell in order to achieve a pre-tax profit of $1,000,000 (to the nearest full parachute)
  4. What is the company's Margin of Safety based on estimated sales of 90,000? What does this mean to management?
  5. The Marketing Manager feels that by lowering the selling price to $400 and by dropping Advertising costs to $35,000, they will be able to sell around 100,000. Advise the marketing manager what the financial outcomes would be if this was to be implemented. Do you feel that it is appropriate, explaining your reasons.
Posted Date: 2/23/2013 5:21:33 AM | Location : United States







Related Discussions:- Calculate the estimated profit, Assignment Help, Ask Question on Calculate the estimated profit, Get Answer, Expert's Help, Calculate the estimated profit Discussions

Write discussion on Calculate the estimated profit
Your posts are moderated
Related Questions
Q. Evaluate Total Cost - Fixed and Variable ? Total cost (TC) of the firm is a function of output (q). It would increase with the increase in output, which is, it differs dire

Q. Illustrate Internal Economies of Scale? Internal economies of scale are the benefits of large scale production. They are enjoyed by the firm when it increases its scale of p

critically analysis the profit maximisation theory of business firm and illucidet the role of profit in business

Perfectly Inelastic (Zero Elastic) Supply Supply is said to be perfectly inelastic if the quantity supplied is constant at all prices.  The supply curve is a vertical straight

Drafting of Price Policy: Demand forecasts assist the management to prepare a few appropriate pricing systems, so that level of price doesn't fall and rise to a great extent at th

Q. What do you mean by External Economies? External economies arise outside the firm as a result of improvement in industrial environment in that the firm operates. They are ex

Limitations of Open Market OperationsLimitations For their success central bank open market operation assume that commercial banks in the country will expand their credit port

pricing under oligopoly

Exceptional supply curves In have some situations the slope of the supply curve may be reversed.   i)   Regressive Supply.   In this case, the higher the price within a ce

Discuss some of the effects of the economic downturn on supply, demand, inferior goods, complimentary goods, substitute goods, and price. words accepted#