Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $2.5 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm's assets (all equity financed) are $4 million. The firm estimates that it can change its production process, adding $4.5 million to assets and $380,000 to fixed operating costs. This change will reduce variable costs per unit by $12,000 and increase output by 15 units. However, the sales price on all units must be lowered to $88,000 to permit sales of the additional output. The firm has tax loss carryforwards that render its tax rate zero, its cost of equity is 16%, and it uses no debt. What is the incremental profit

Schweser Satellites Inc.

The incremental profit is:

= $845,000

Explanation:

a) Data and Calculations:

Selling price of Satellite Earth Station = $95,000 each

Total sales revenue = $4,750,000 ($95,000 * 50)

Fixed costs, F = $2.5 million

Annual production and sales units = 50 units

Total profits = $500,000

Total contribution = $3 million ($2.5 m + $500,000)

Variable costs = $1,750,000 ($4,750,000 - $3,00,000)

Variable cost per unit = $35,000 ($1,750,000/50)

Assets = $4 million

Equity = $4 million

Additional assets = 4.5 million

Additional fixed operating costs = $380,000

New assets = 8.5 million

Fixed operating costs = $2.88 million

Variable cost reduction per unit = $12,000

New variable cost per unit = $23,000 ($35,000 - $12,000)

Production and sales units = 65 (50 + 15)

New selling price per unit = $88,000

Cost of equity = 16%

Tax rate = 0%

Profit under new arrangements:

Contribution per unit = $65,000 ($88,000 - $23,000)

Total contribution margin = $4,225,000 ($65,000 * 65)

Fixed operating costs =       $2,880,000

Net operating profit              $1,345,000

Incremental profit = $845,000 ($1,345,000 - $500,000)

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

your welcome leave a rate and a < 3

the first successful, urban blues recording, selling more than 75,000 copies, was made in year 1920.

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