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
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.
Presently the profit is $75 per unit and the total profit is 15,000X75=$1,125,000
Using the internet to sell the software, the incremental price is higher by $50 and the additional ...
The solution explains the calculation of incremental profit from selling directly to customers.