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27.07.2022 - 14:50

Life Sound Company manufactures two models of solar powered noise-canceling headphones: Noise Resistant and Total Silence models. The company is operating at less than full capacity. Market research i

Question:

Life Sound Company manufactures two models of solar-powered noise-canceling headphones: Noise Resistant and Total Silence models. The company is operating at less than full capacity. Market research indicates that 30,700 additional Noise Resistant and 33,500 additional Total Silence headphones could be sold. The income from operations per unit of product is as follows:

	Noise Resistant Headphone	Total Silence Headphone
Sales price	$29.60	$46.20
Variable cost of goods sold	16.60	25.90
Manufacturing margin	$13.00	$20.30
Variable selling and administrative expenses	5.90	9.20
Contribution margin	$7.10	$11.10
Fixed manufacturing costs	2.70	4.20
Income from operations	$4.40	$6.90

Prepare an analysis indicating the increase or decrease in total profitability if 30,700 additional Noise Resistant and 33,500 additional Total Silence headphones are produced and sold, assuming that there is sufficient capacity for the additional production.

Answers (1)

Elma April 12, 2023 в 13:09

Producing and selling 30,700 additional Noise Resistant headphones will lead to an increase of $135,080 in income from operations, while producing and selling 33,500 additional Total Silence headphones will lead to an increase of $231,150 in income from operations. This is because the contribution margin per unit is higher for the Total Silence headphones, resulting in a higher income from operations. Therefore, the company should prioritize increasing production and sales of Total Silence headphones.

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