Reference no: EM132586970

Cora Corporation produces refrigerator units. The company's normal production and sales volume of Standard units is 5,750 units per month, and units sell for $980 each. The costs of manufacturing and marketing a Standard model are as follows:

Variable manufacturing cost per unit $350

Variable marketing cost per unit 95

Fixed product cost 575,000

Fixed period cost 460,000

The company is considering diversifying the product line to include two additional models, Economy and Deluxe, which would sell for $840 and $980 per unit, respectively. The costs of manufacturing these new models are as follows:

Economy Deluxe

Variable manufacturing cost 40% below Standard $605

Variable marketing cost 5% above Standard Twice Standard Total fixed product and period costs are expected to remain unchanged. Cora expects to sell 2,300 units of the Economy model and 2,050 units of Deluxe model per month. The company cannot expand its production capacity beyond its current level of 5,750 units.

Required:

Question 1: If Standard Model is the only product ,what would the Operating income be?

Question 2: Suppose that a supplier is willing to supply 1,400 units of the Standard model at a price of $350 per unit. Also assume that the company can sell all that it can produce of the remaining two models. Should the offer of the supplier be accepted?

Question 3: Which of the model should produced? Standard ModelEconomy ModelDelux Model