Reference no: EM132551056
Burns Industries currently manufactures and sells 20,000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $65, consisting of $40 in variable costs and $25 in fixed costs. Burns sells its saws to retail stores for $80 each. Allen Distributors has offered to purchase 5,000 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs.
Question 1: Assume that Allen Distributors offers to purchase the additional 5,000 saws at a price of $47 per unit. If Burns accepts this price, how will be the change in Burns' monthly gross profit on sales of power saws? (show your computations and indicate the direction of the change using the words "increase" or "decrease":
Question 2: Assuming only criteria in accepting such offer is short term financial gain or loss, what would be the minimum unit price that Burns Industries would accept to sell its saws to Allen Distributors? Why? (with max. five words)
Question 3: Assume Burns wants to add an additional 100.000 USD to its current operating profit by accepting the offer Allen Distributors. In this case, how would be the unit price that Burns need to charge for its saws?
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