1

Management Accounting Tauseef A.Qureshi

SOLUTIONS
Assignment No 3 (CVP Analysis)

Problem No 1: (Schrimper Knife Company)

SP = $36 CM Ratio = 40% FC = 288,000

Annual sales 50,000 units VC 60% of Sales $36×0.60=$21.60

(A) Increase in NI if sales increase by 15000 units

Previous NI = (50,000×$36) – (50,000×$21.6) – 288,000 = $432,000
New NI = (65,000×$36) – (65,000×$21.6) – 288,000 = $648,000
CM = $36-$21.50 = $14.4
Increase in income = 15,000×$14.40 = $216,000

(B) CM is 40% of sales

$12,000×.40 = $48,000 increase

(C) Increase in NI 100,000×0.40 = $40,000

Increase in FC = $60,000
Loss ($20,000)
(D) New SP = $36×0.80= $28.80
New FC = 288,000+50,000 = $338,000
New Sales units = 50,000×1. 5= 75,000 units

NI = (75,000×$28.80) – (75,000×$21.60) – 388,000 = $202,000

Not Accepted
28.80 (SP) – 21.60 (VC ) = 7.2 (CM % 25)

Problem No 2: (Raub Company)

(A) New sales units 10,000×1.10= 11,000

New FC $53,760 × 0.95 = $51,072
New NI 11,520×1.25
SP = $153,600÷0,000 = $15.36

(11,000×$15.36) – VC – $51,072 = $14,400

VC=$103,488 VC per unit = 103,488÷11,000 = $9.408

CM = $15.36 - $9.048 = $5.952

BEP = $51,072 ÷ $5.952 = 8583 units

BEP ($) = 8583×$15.36 = $131,482
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(B) New Sales units = 10,000×1.3 = 13,000 units

New NI $11,520+ $11,520 × 1.5 = $288,800

VC $88,320÷10,000 = $8.832

Expected NI = 13,000×15.36 – 13,000×8.832 -53,760 = $31,104

Actual NI 28,800
Performance was worse than expected $2,304

(C) NI = (9,500×15.36) – (9.500×7.9488) – 58,760 = $11,646

Previous NI 11,520
Increase in NI $126
New sales units = 10,000×0.95= 9,500
New FC = 53,760 + 5,000 = $58,760
New VC = 8.832×0.90 = $7.9488

(D) 15.36 X – 8.832 X – (53,260 + 10,200) = $11,520

X = 11,484 units

Increase I units = 11.484 – 10,000 = 1,484 units

Increase sales = 1,484 × $15.36 = $22,794

Problem No 3: (Terry Company)

(A) Sales = (10,000×10 + 6,000×20 + 4,000×40) = $380,000

VC = (10,000×6 + 6,000×10 + 4,000×16) = (184,000)
CM 196,000
FC (56,800)
Net Income $39,200

(B) Sales = 10,000 + 6,000 + 4,000 = 200,000 Units

50% 30% 20%

Weighted Average CM = $4×0.5 + $10 × 0.30 + 24 ×0.20 = $9.80

BEP = $156,800 ÷ 9.80 = 16,000 units
A 16,000× 0.50 = 8,000
B 16,000× 0.20 = 3,200
C 16,000× 0.30 = 4,800

(C) BE Sales = 8,000×10 + 4,800×20 + 3,200 ×40 = $304,000

Margin of Safety % = (Sales – BE Sales) ÷ Sales

= (380,000 – 340,000) ÷ 380,000 = 20% or $76,000
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Problem No 4: (Foster Company)

(A) Total Sales = 240,000 + 40,000 + 120,000 = $400,000

60% 10% 30%

R S T
Sales $240,000 $40,000 $120,000
Sales (Units) ÷ 30,000 5,000 15,000
$8
VC $180,000 $20,000 $96,000
VC per unit $6 $4 $6.4
CM $2 $4 $1.6

Weighted Average CM = 0.60× $2 + 0.10× $4 + 0.30× $1.60 = $2.08

BE Sales = $74,880 ÷ $2.08 = 36,000 units

(B)

R 36,000 × 60% = 21,600 × $8 = $172,800

S 36,000 × 10% = 3,600 × $8 = $28,800
T 36,000 × 30% = 10,800 × $8 = $86,400

(C) Total Sales = 120,000 + 160,000 + 120,000 = $400,000

30% 40% 30%
Weighted Average CM = 0.30× $2 + 0.40× $4 + 0.30× $1.60 = $2.68
BE Sales = $80,400 ÷ $2.68 = 30,000 units

R 30,000 × 30% = 9,000 × $8 = $72,000

S 30,000 × 40% = 12,000 × $8 = $96,000
T 30,000 × 30% = 9,000 × $8 = $70,000

Problem No 5: (Ticonderoga Sporting goods Company)

1. CM = 10,000,000 (sales) – 6,000,000 (CGS) – 2,000,000 (Comm) = 2,000,000
CM ratio = 2,000,000 ÷ 10,000,000 = 0.20
BEP = 100,000 (FC) ÷ 0.20 (CM ratio) = $500,000

2. Sales salaries 30,000 × 3 = 90,000

Sales manger salary 160,000
Other fixed expenses 100,000
$350,000
New CM = 3,500,000 ÷ 10,000,000 = 0.35
BEP = 350,000 (FC) ÷ 0.35 (CM ratio) = $1,000,000
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3. Assume 25% sales commission

New CM = 10,000,000 – 6,000,000 – 2,500,000 = 1,500,000
CM ratio = 1,500,000 ÷ 10,000,000 = 0.15
BEP = (100,000 + 1,900,000) ÷ 0.15 (CM ratio) = $13,333,333

Problem No 6: (Great Northern Ski Company)

1. CM ratio (Touring Model) = ($80-$52.80) ÷ $80 = 0.34

2. S = 316,800 + (22,080 ÷ (1-0.40)) ÷ ($80-$52.80) = 13,000 Units

3. BE (Mountaineering model) = $369,600 ÷ ($88 - $52.50) = 10,500 units

$316,800 ÷ ($80 – VC) = 10,500 units VC = $49.82

4. New VC = $52,80×0.90 = $47,52 New FC = $316,000 × 1.10 = $348,400

BEP = $348,400÷ ($80 - $47.20) = 10,729 units

5. Wt Av CM = $35.20 × 0.5 + $27.20 × o.5 = $31.20

BEP = ($343,200÷$31.20) = 11,000 units (5,500 units of each)

Problem No 7: (Monnex Corp)

Fixed overhead = $5×5,000+$5×20,000+$5×10,000 = $175,000

CM Radial 50-50 = 0
CM All Terrain 100-75=$25
CM Super Pro 200-95=$105

Weighted average CM = 0+ $25 ×(20,000÷35,000)+ $105 ×(10,000÷35,000) = $44.29

Total BEP = ($175,000+150,000) ÷ $44.29 = 7,338 units

BEP for Radial tires = 7,338 × (5000÷35,000) = 1049 units

Problem 8: (New Concept Store)

1.
Sales (7,300 pairs@ $25) $182,500
Variable Costs
V.CGS $94,900
V. Selling ($7,300@ $2) 14,600 109,500
CM 73,000
Fixed Costs
Selling (21,700 – 14,600) 7,100
Admin 25,900 33,000
NI $40,000
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2. CM Ratio = 73,000 ÷182,500 = 0.40 BEP = 33,000 ÷ 0.40 = $82,500 or 3,300 pairs

3.
Sales (8,760 pairs@ $28) $245,280
Variable Costs
V.CGS $122,640
V. Selling (8,760@ $2.24) 19,622 142,262
CM 103,018
Fixed Costs
Selling (7,100+ 6,160) 13,260
Admin (25,900 + 2,000) 27,900 41,160
NI $61,858

4. CM ratio = 103,018 ÷ 245,280 = 0.42 BEP = 41,160 ÷ 0.42 = $98,000 or

3,500 pairs+*5

5. Margin of Safety = 245,280 – 98,000 = S147,200 or 60%

6. = (41,160 + 67,032) ÷ 0.42 = $257,600 or 9,200 units

Problem No 9 (Walk Rite Shoe Company)

SP = $ 30 VC = $19.5 + 1.50 = $21 UCM = 30 -21 = $9

FC = 60,000+200,000+80,000+20,000 = $360,000
1.
(a) BEP = $360,000 ÷ $9 = 40,000 pairs
(b) 40,000 × $30 = $ 1,200,000

2. Operating income = (35,000 × $30) – (35,000 × $21) - $360,000 = $ (45,000)

3. FC = 360,000 + 81,000 = $441,000 VC = $19.50 UCM = 30 – 19.5 = $10.50

BEP = 441,000 ÷ 10.50 = 42,000 pairs

4. FC = 360,000 VC = 21 + 0.30 = $21.30 UCM = 30 – 21.30 = $ 8.70

BEP = 360,000 ÷ 8.7 = 41,380 pairs × $30 = $ 1,241,400.

5. BEP = 40,000 pairs as (1)

OI=(50,000 × $30) – (50,000 × $19.50) – (50,000 × 1.5) – (10,000 × 0.30) - $360,000
= $ 87,000
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Problem No 10 (Goldman Company)

1. Let Q = Number of units of Deluxe product to BE

Let 3Q = Number of units of Standard product to BE
Revenue – VC – FC = OI
(3Q × $20 + Q ×30) – (3Q × $14 + Q × $18) -1,200,000 = 0
30 Q = $1,200,000

Q = 40,000 units of Deluxe

3Q = 120,000 units of Standard
2. UCM ( Std) = 20 – 14 = $ 6
UCM ( Deluxe) = 30 – 18 = $ 12
If only Std are sold BE = 1,200,000 ÷ 6 = 200,000 units
If only Deluxe are sold BE = 1,200,000 ÷ 12 = 100,000 units

3. OI = 180,000×$6 + 20,000 ×12 – 1,200,000 = $120,000

4. Let Q = Number of units of Deluxe product to BE

Let 9Q = Number of units of Standard product to BE
Revenue – VC – FC = OI
(9Q × $20 + Q ×30) – (9Q × $14 + Q × $18) -1,200,000 = 0
Q = 18,182 (Deluxe)
9Q = 18,182 × 9 = 163,638 (Standard)
BEP = 163,638+18,182 = 181,820 units

Problem No 11 (Evenkeel Corporation)

Evenflo (infant car) CM = 50-30 = $ 30

FC = $ 495,000
1. BEP – Year 2000 = 495,000 ÷ 30 = 16,500 units
2. Ridex (infant car) CM = 25-15 = $ 10
Evenkeel expects to sell 3 units of Evenflo to 2 units of Ridex
CM for bundled produces = $30×3 + $10×2 = $110
Sales for bundled products = $50×3 + $25×2 = $200
BEP = 495,000 ÷ 110 = 4,500 bundled
Evenflo = 4,500 ×3 = 13,500 units ×$50 = 675,000
Ridex = 4,500 ×2 = 9,000 units ×$25 = 225,000

3. CM % in 2,000 = $30 ÷ $ 50 = 60%

CM % in 2,001 = $100 ÷ $ 220 = 55%

BEP in year2001 increases because FC are same in both years. But the CM
generated by each dollar of sales revenue at the given product mix decreases in
2001 relative to year 2000.
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Problem No 7: (European division)

1. UCM = (1,000,000 – 700,000) ÷ 100,000 = $3 per unit

BEP = 210,000 ÷ 3 = 70,000 units
CM ratio = (1,000,000 – 700,000) ÷ 1,000,000 = 0.3
BEP = 210,000 ÷0.3 = $700,000

2. Q = 210,000 + ( 90,000 ÷ 0.6) ÷ $3 = 120,000 units

3. If FC increases by $31,500
BEP (units) = (210,000+ 31,500) ÷ 3 = 80,500 units

4. Q = 210,000 + (90,000 ÷0.5) ÷ 3 = 130,000 units

Problem No 9: (Borosil Ltd.,)

1. OI = 1,000,000 – 550,000 -270,000 = $180,000

NI = 180,000 – (180,000 × 0.4) = $108,000

2. BEP = 270,000 ÷ (50 – 27.50) = 12,000 units

3. NI (1- 0.40) = (22,000×$50) – (22,000×$27.5) – (270,000 + 22,500) = $121,500

4. BEP = (270,000+22,500) ÷ (50 – 27.50) = 13,000 units × $50 = $650,000

5. Let S is required sales units

$50 S - $27.50 S - $292,500 = $ 108,000 (1- 0.40) S= 21,000 units
Revenue = 21,000×$50 = $1,050,000

6. Let A = Amount spent on advertising in next year

22,000×$50 – 22,000×$27.50 – (270,000 +A) = $ 120,000 (1-0.40) A= $25,000
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Problem No 10: ( Fill in)

Situations A B C D E
SP per unit $5 $50 $20 $16.67 $30
VC as % of SP 60% 60% 75% 75% 66.66%
Units sold 10,000 4,000 30,000 6,000 5,000
Contribution margin $20,000 $80,000 $150,000 $25,000 $50,000
Fixed Costs $12,000 $60,000 $120,000 $10,000 $35,000
Profit/Loss $8,000 $20,000 $30,000 $15,000 $15,000

Problem 12: (Voltar Company)

1. Degree of OL = CM ÷ NI
$300,000÷$60,000 = 5

2. Expected increase is sales 8 %

Degree of OL = 5
Expected increase in net operating income = 8% × 5 = 40%
= $24,000

3. If sales increase by 8%, then 21,600 units (20,000 + (920,000×8%) will be sold next
year .
Total Per Unit % of sales
Sales $1,296,000 $60 100%
Less Variable Expenses 972,000 45 75%
Contribution margin 324,000 $15 25%
Less Fixed expenses 240,000
Net Operating income $84,000

($84,000 - $60,000)÷$60,000 = 40 % increase

Problem No 13 (Sunshine Tours)

Commission (SP) = $ 80 ( 8% commission of ticket price)

VC = $ 35 ( $18 Delivery char5ges + $17 Misc cost)
FC = $ 22,000 per month. UCM = $ 80 - $ 35 = $ 45

1. (a) BEP = $22,000 ÷ $45 = 489 tickets

(b) Qty = ( $22,000 + $10,000) ÷ $45 = 712 tickets

2. Delivery charges changes to $12 per ticket

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New VC = $12 + $17 = $29

UCM = 80 – 29 = $51

(a) BEP = $22,000 ÷ $51 = 432 tickets

(b) Qty = ( $22,000 + $10,000) ÷ $51 = 628 tickets

3. CA changes its commission structure. Up to ticket price $600 8 % comm.. For

tickets ≥ 600 $48 fixed
New UCM = $48 – 29 = $19

(a) BEP = $22,000 ÷ $19 = 1158 tickets

(b) Qty = ( $22,000 + $10,000) ÷ $19 = 1685 tickets

Problem No 18 (R.A.Ro and Company)

1. OI = Rev – VC – FC
= 500,000 – ( 20,000×13.75) – 135,000= $90,000
= 90,000(90,000×0.4) = $54,000

2. BEP= 270,000 ÷ (25-13.75) = 24,000 Units

3. NI = Rev – VC – FC
X ÷ 0.6 = 550,000 – (22,000×13.75) – (135,000+11,250)
OI = $60,750

4. BEP= 146,250 ÷ (25-13.75) = 13,000 Units

5. 25Q – 13.75Q –(135,000+11,250) = 54,000

Q = 21,000 units
Revenue = 21,000 ×$25 = $525,000

6. (22000×25) –(22,000×13.75) –(135,000 + X ) = 6-0,000 ÷1-0.4

X = $125,000
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Problem No 19 (Independent cases)

Case 1

CM Income Statement

Revenue $100,000
V.Cost of goods sold:
DM ( beg) 12,000
Purchased 15,000
DM(End) (5,000)
DM Used 22,000 (H)
DL 30,000
V. Manufacturing overhead 5,000
V. Marketing and Admin costs 13,000 (K)
Total Variable costs 70,000
Contribution Margin 30,000
Fixed Costs:
Fixed manufacturing overhead 13,000(I)
Fixed. Marketing & Admin 7,000(J)
Total Fixed costs 20,000
Operating Income (loss) $10,000

BEP = FC ÷ CM % 66,667 = FC ÷ 0.30 FC= $ 20,000

Conventional Income Statement

Revenue $100,000
Cost of goods sold:
DM used 22,000
DL 30,000
V. Manufacturing overhead 5,000
F. Manufacturing overhead 18,000(I)
Cost of goods manufactured 75,000(G)
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Gross Margin 25,000

Operating expenses:
V. Marketing and Admin costs 13,000
F. Marketing & Admin 2,000(J)
Total Operating expenses 15,000
Operating income $10,000

Case 2

CM Income Statement

Revenue $100,000
V. Cost of goods sold:
DM ( beg) 30,000 (W)
Purchased 50,000
DM(End) (40,000)
DM Used 40,000
DL 15,000
V. Manufacturing overhead 5,000
V. Marketing and Admin costs 15,000
Total Variable costs 75,000
Contribution Margin 25,000 (V)
Fixed Costs:
Fixed manufacturing overhead 20,000
Fixed. Marketing & Admin 10,000
Total Fixed costs 30,000
Operating Income (loss) (5000)

BEP = FC ÷ CM % 66,667 = (18,000+X) ÷ 0.30 FC= $ 2,000

Conventional Income Statement

Revenue $100,000
Cost of goods sold:
DM used 40,000
DL 15,000
V. Manufacturing overhead 5,000 (X)
F. Manufacturing overhead 20,000
Cost of goods manufactured 80,000(U)

Gross Margin 20,000

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Operating expenses:
V. Marketing and Admin costs 15,000 (T)
F. Marketing & Admin 10,000
Total Operating expenses 25,000
Operating income (5,000)

BEP = 30,000 ÷ 0.25 = $125,000

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Problem No 6 (Tic Toc Ltd)

Tic Toc Ltd produces two types of clocks: a digital model and an Analog model
Budgeted sales for next
year are as follows:

Digital Analog Total

Sales Volume 8,000 units 12,000 units 20,000 units
Sales revenue $180,000 $140,000 $320,000

Total variable manufacturing costs, which are joint costs, are estimated to amount to
$160,000 next year and
variable selling costs are estimated to amount to 5% of sales. Budgeted fixed cost for
next year are $80,000 for
manufacturing overhead and $24,000 for selling and administration. All manufacturing
costs are allocated to
the two models on the basis of sales revenue. The company’s effective tax rate is 30%.

1. The budgeted contribution margin percentage for sales is

a) 45% for both models

b) 59.4 for the digital model and 26.4 for the analog model
c) 25% for both models
d) 505 for both models
e) 12.5% for both models

2 . Assuming the budgeted contribution margin percentage is 40% of sales for both
models, the desired total sales
required to be raised by Tic Toc Ltd. To earn an after-tax income of $70,000 is

a) $354,286
b) $453,333
c) $487,500
d) $510,000
e) $582,857
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3. Assuming the budgeted dollar mix is maintained during the year and the Contribution
margin percentage of sales is
30% for the digital model and 50% for the Analog model, how many units of each
model must Tic Toc Ltd. sell
during the year to make a contribution margin of $164,000?

a) Digital model – 15,449 units; analog model – 10,332 units

b) Digital model – 13,667 units; analog model – 12,300 units
c) Digital model – 10,581 units; analog model – 15,871 units
d) Digital model – 9,762 units; analog model – 14,643 units
e) Digital model – 9,719 units; analog model – 16,869 units

4. Assume the budgeted dollar sales mix and the budgeted sales volume for each model
are maintained for next year.
Also assume the budgeted contribution margin is 40% of sales for both models and
total fixed costs amount to
$105,000 for next year. What is the minimum unit price for each model that should be
set to earn a 7% after-
tax return on sales next year?

a) Digital model - $17.50/unit; analog model - $17.50/unit

b) Digital model - $18.46/unit; analog model - $9.57/unit
c) Digital model - $20.51/unit; analog model - $10.64/unit
d) Digital model - $22.37/unit; analog model - $11.60/unit
e) Digital model - $24.61/unit; analog model - $12.76/unit
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Problem 14:
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Problem 13: (Unknown Numbers)

For each of the following independent cases, find the unknown designated by the
capital letters.

Case 1 Case 2
Direct material used H $40,000
Direct manufacturing labor $30,000 15,000
Variable marketing, distribution and Admin costs K T
Fixed manufacturing overhead I 20,000
Fixed marketing, distribution and Admin costs J 10,000
Gross Margin 25,000 20,000
Finished goods inventory, January 1,2000 0 5,000
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Finished goods inventory, December31,2000 0 5,000

Contribution margin (dollars) 30,000 V
Revenues 100,000 100,000
Direct material inventory, January 1,2000 12,000 20,000
Direct material inventory, December31,2000 5,000 W
Variable manufacturing overhead 5,000 X
Work in process, January 1,2000 0 9,000
Work in process, December 31,2000 0 9,000
Purchases of Direct materials 15,000 50,000
Breakeven points in dollars 66,667 Y
Cost of goods manufactured G U
Operating income L (5,000)

Case 1 (G to L) 75,000 (G) , 22,000 (H), 13,000 (I), 7,000 (J), 13,000 (K)

CM Income Statement

Revenue $100,000
V.Cost of goods sold:
DM ( beg) 12,000
Purchased 15,000
DM(End) (5,000)
DM Used 22,000 (H)
DL 30,000
V. Manufacturing overhead 5,000
V. Marketing and Admin costs 13,000 (K)
Total Variable costs 70,000
Contribution Margin 30,000
Fixed Costs:
Fixed manufacturing overhead 13,000(I)
Fixed. Marketing & Admin 7,000(J)
Total Fixed costs 20,000
Operating Income (loss) $10,000

BEP = FC ÷ CM % 66,667 = FC ÷ 0.30 FC= $ 20,000

Conventional Income Statement

Revenue $100,000
Cost of goods sold:
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DM used 22,000
DL 30,000
V. Manufacturing overhead 5,000
F. Manufacturing overhead 18,000(I)
Cost of goods manufactured 75,000(G)

Gross Margin 25,000

Operating expenses:
V. Marketing and Admin costs 13,000
F. Marketing & Admin 7,000(J)
Total Operating expenses 20,000
Operating income $5,000
Case 2

CM Income Statement

Revenue
V.Cost of goods sold:
DM ( beg)
Purchased
DM(End)
DM Used
DL
V. Manufacturing overhead
V. Marketing and Admin costs
Total Variable costs
Contribution Margin
Fixed Costs:
Fixed manufacturing overhead
Fixed. Marketing & Admin
Total Fixed costs
Operating Income (loss)

BEP = FC ÷ CM % 66,667 = FC ÷ 0.30 FC= $ 20,000

Conventional Income Statement

Revenue
Cost of goods sold:
DM used
DL
V. Manufacturing overhead
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F. Manufacturing overhead
Cost of goods manufactured

Gross Margin
Operating expenses:
V. Marketing and Admin costs
F. Marketing & Admin
Total Operating expenses
Operating income

Problem No 8 (Revise) page 322 Hilton – P 8-33

Designer Pak Company produced and sold 60,000 backpacks during the year just ended
at an average price of $20 per unit. Variable manufacturing cost were $8 per unit and
variable marketing cost were $4 per unit sold. Fixed costs amounted to $180,000 for
manufacturing and $72,000 for marketing. There was no year- end WIP inventory.
Ignore income taxes.
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Required:

1. Compute Designer Packs break-even point in sales dollars for the year.

2. Compute the number of sales units required to earn a Net Income of $180,000 during
the year.

3. The Designer Packs variable manufacturing costs are expected to increase 10% in the
coming year. Compute the firm’s break-even point in sales dollar for the coming year.

4. If Designer Packs variable manufacturing costs do increase 10%, compute the selling
price that would yield the same contribution margin ratio in the coming year.

1. BE = FC ÷ CM %

= (180,000 + 72,000) ÷ 0.4 = $630,000

2. Q = (252,000+180,000) ÷ (20-8-4) = 54,000 units

3. New unit variable manufacturing cost = 8×1.10 = $8.80

CM = $20 – 12.80 = 7.2

CM ratio = 7.2÷20 = 0.36

BEP = $252,000 ÷ 0.36 = $700,000

4. P is the SP that will yield same CM ratio.

(P- 8.80- 4) ÷ P = O.40

0.4 P = P – 12.80

P = $21.33

Problem No 12: (ABC Company)

The ABC company produces two products. The marketing department expects that
the company can sell 1,000 units of product A and 1,100 units of product B per
month. The company provides the following information:
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Product A Product B
Unit sales price $210 $270
Unit variable cost 110 120

Total fixed cost for FIVE machines used to manufacture both products is $120,000. It
takes 1 machine hour (on any of these machines) to produce product A and 2 hours to
produce product B. Each machine has a capacity of 680 hours/month.

a) Assuming that sales mix is constant, (i.e., the company will sell 1.1 unit of
product B for each unit of product A sold), how many units of product A and B
should the company produce each month at the break-even point?

b) One machine was broken unexpectedly and it will take a long time to get a new
machine, so only FOUR machines are in operation now. To maximize profit, how
many units of product A and B should the company produce? What is the total
profit ( assume fixed costs remains unchanged)

c) Before ABC gets a new machine to replace the one broken, the company can
temporarily outsource product A (only A can be outsourced) at total costs of
$160/unit. Does the company need to change the production plan you suggested
in b)? If so, how many units of product A and B now should be produced or
outsourced? What’s the total profit?