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Calculating Incremental profits

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Universal Audio manufactures car speakers that it sells to other resellers that then customize and distribute the product to retailers that sell hi-fi auto equipment. The yearly volume of output is 300,000 pairs. The selling price and cost per unit are shown below:

Selling price $150
Costs:
Direct material $25
Direct labor $45
Variable overhead $20
Variable selling expenses $15
Fixed selling expenses $100,000
Unit profit before tax $35

Management is evaluating the alternative of performing the necessary customizing to allow Universal Audio to sell its output directly to car stereo retailers for $200 per unit under an in-house label. Although no added investment in productive facilities is required, additional processing costs are estimated to be:

Direct labor $20 per unit
Variable overhead $15 per unit
Variable selling expenses $10 per unit
Fixed selling expenses $300,000 per year

(A) Calculate the incremental profit that Universal Audio would earn by customizing its instruments and marketing directly to end users.

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Solution:

1.Additional direct labor=$20
2.Additional Variable overhead=$15
3.Additional Variable ...

Solution Summary

Solution describes the steps for calculating incremental profit if company decides to sell their products directly to retailers.

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See Also This Related BrainMass Solution

How do you calculate incremental profit for South Park Software, Inc.?

South Park Software, Inc, Produces innovative interior decorating software that it sell to design studios, home furnishing stores, and soon. the yearly volume of output is 15,000 units. Selling price costs per unit are as follows:

Selling Price 250
Costs
Direct material 40
Direct labor 60
Variable Overhead 30
Variable Selling expense 25
Fixed selling expenses 20 -175
Unit Profit before tax $75

Management is evaluating the possibility of using the internet to sell its software directly to consumers at a price of $300.00 per unit. Although no added capital investment is required, additional shipping and handling costs are estimated as follows;

Direct labor 30 Per unit
Variable overhead 5 per unit
Variable Selling expenses 2 per unit
Fixed selling expense 20,000 per year

Calculate the incremental profit that south park would earn by customizing its instruments and marketing them directly to end users.

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