Q1) Generators, Inc. manufactured emergency backup generators for use in large commercial buildings. Costs of manufacturing and marketing generators at company's normal volume of 3,000 units per month aregiven
Costs per Unit for Generators
| Unit Manufacturing costs: |
| Variable Materials |
$1,000 |
|
| Variable Labor |
1,500 |
|
| Variable Overhead |
500 |
|
| Fixed Overhead |
1,200 |
|
| Total Manufacturing Cost |
|
$4,200 |
| Unit Marketing Costs: |
| Variable |
500 |
|
| Fixed |
1,400 |
|
| Total Marketing Cost |
|
1,900 |
| Total Unit Cost: |
|
$6,100 |
Following questions refer only to data given above. Unless otherwise stated, suppose there is no connection between conditions explained in each of questions, each is to be treated independently. Unless otherwise stated, regular selling price of $7,400 per unit must be assumed.
On March 1, a contract offer is made to Redi-Watt by federal government to supply 500 units to Veterans Administration hospitals for delivery by March 31. As of unusually large number of rush orders from their regular customers, Redi-Watt plans to make 4,000 units in March, that will use all available capacity. If government order is accepted, 500 units normally sold to regular customers would be lost to competitor. Contract given by government would reimburse government's share of March manufacturing costs (fixed and variable) plus pay fixed fee (profit) of $500,000. There would be no variable marketing costs incurred on government's units. What impact would accepting government contract have on March income?