1.

Perform an incremental analysis of the revenue, costs, and profit resulting from converti
models as compared with selling them to the mail-order firm
Sell to Mail-order
Incremental sales revenue
Incremental manufacturing costs
Incremental benefit cost

$
$

1,900,000.00
1,900,000.00

2.. Identify any sunk costs, out-of-pocket costs, and possible opportunity costs.

Sunk costs:
Out-of-pocket costs:

5000 x 525= $2625000

5000 x 600 =$3000000

Opportunity costs: The profit foregone on the production and sale of new pro
the old models forces the company to reduce production of other salable produ

3. Indicate which of these options you would select and explain your reasoning, assuming
1. Has substantial excess capacity.
2. Is operating at full capacity manufacturing new models

1 Assuming excess capacity, Louie Optics should rework the old models so that th
additional $2,000,000 incremental benfits which is $100,000 greater than sellin

2 If Louie Optics is already operating at full capacity, the business should sell the
mail-order firm. If the business convert the old models, they will provide more
which makes the profit of the company as a whole declines.

If Louie Optics is already operating at full capacity, the business should sell the
mail-order firm. If the business convert the old models, they will provide more
which makes the profit of the company as a whole declines.

s, and profit resulting from converting the old models to new

elling them to the mail-order firm
Convert to

Incremental
Analysis
$ 5,000,000.00 $ 3,100,000.00
(3,000,000) $ (3,000,000.00)
### $ 100,000.00

ssible opportunity costs.

the production and sale of new products if remanufacturing

e production of other salable products.

d explain your reasoning, assuming that Louie Optics currently:

uld rework the old models so that the company will realized
which is $100,000 greater than selling as is.

pacity, the business should sell the old models as is to the

old models, they will provide more cost and opportunity cost
whole declines.