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Question - Farm Fresh Trees Inc. manufactures pre-lit artificial Christmas trees. It has a manufacturing capacity of 15.000 trees per month. Current production is 12,000 trees per month. Farm Fresh Trees normally sells the tree for $350.00 per unit. l(lost information based on current production for the trees are: Direct materials $840,000 Direct labour T50.000 Variable manufacturing overhead 604,000 Variable marketing costs 240,000 Fixed manufacturing costs 550.000 Fixed marketing costs 300.000 Variable marketing costs are composed of two elements. 00% of the variable cost is for sales commissions and 40% of the cost relates to shipping.
Required -
1. What is the unit contribution for each pre-lit tree?
2. Farm Fresh Trees has received a special one-time order for 3.000 for $290.00 per tree. Variable marketing costs will decrease by 60% per unit as no selling commission will be paid. Accepting the order would not affect the company's regular business. The order must be accepted in full or rejected completely. Should Farm Fresh Trees accept the order?
3. Suppose, instead, that Farm Fresh Trees is producing at full capacity for its regular customers. Should the order be accepted? Explain and provide quantitative support for full marks.
4. Assume the original information. A different company is interested in purchasing 2,000 units (order must be accepted in full or rejected). Variabie shipping costs will increase by 15% but sales commission will not be paid. Farm Fresh Trees wants to ensure that the net operating income for the company as a whole will increase by 20% if the order is taken. What price per unit must the Farm Fresh Trees charge the customer to achieve this result?
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