Daniel Chan and Jhovanni Fox opened ICU Optical seven years ago with the goal of producing fashionable and affordable eyewear. Chan and Fox have been very pleased with their revenue growth.One particular design, available in plastic and metal, has become one of the company's best sellers. The following data relate to this design:
|
Plastic Frames |
Metal Frames |
| Sales price |
$60 |
|
|
$80 |
|
|
| Direct materials |
20 |
|
|
18 |
|
|
| Direct labor |
13.5 |
|
|
13.5 |
|
|
| Variable overhead |
6.5 |
|
|
8.5 |
|
|
| Budgeted unit sales |
10,000 |
|
|
30,000 |
|
|
Currently, the company produces exactly as many frames as it can sell. Therefore, it has no opportunity to substitute a more expensive frame for a less expensive one. ICU Optical's annual fixed costs are $1,225,000.