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
Difference between corporate profit maximization and maximization of shareholder wealth? Ans) Sure, profit maximization relates to profits *only* while shareholder wealth also i

Explain about Pragmatic Managerial economics is pragmatic. In pure micro-economic theory, analysis is performed based on certain exceptions that are far from reality. Though in

Quality and Quantity Controls: Demand forecasting is a necessary and valuable instrument in the control of management of an organisation to provide finished goods of correct quant

A hypothetical AD-AS model for Canada During the 1990s, many stock market investors in Canada became optimistic about information technology and bid up stock prices, more t

Advertising expenditure must remain the same If advertising expenditure of a firm increases, consumers may be tempted to buy more of its product. Hence the advertising expendit

Q. Show the importance of Demand forecast? Demand forecast for a particular commodity furthermore offers recommendations for demand forecast of associated industries. For exam

Objectives of IMF To achieve these objectives, the following conditions would have to be fulfilled: - i.            Countries should not impose restrictions in their trade

Statistical technique used to estimate economic variable Some statistical techniques are used to estimate economic variables of interest to a manager. In a number of cases, sta

“Managerial economics involves use of economic analysis to make business decisions involving the best use of a firm’s scarce resources” Explain the statement with suitable example.

a)      In 1948, the money GNP was $520 billion and the price index was 120.  In order to   make the 1948 GNP comparable with the base year, the 1948 GNP must be adjusted    to: