Question

Cora Corporation produces refrigerator units. The company’s normal production and sales volume of Standard units is 5,500 units per month, and units sell for $970 each. The costs of manufacturing and marketing a Standard model are as follows:

Variable manufacturing cost per unit	$	340
Variable marketing cost per unit		90
Fixed product cost		550,000
Fixed period cost		440,000

The company is considering diversifying the product line to include two additional models, Economy and Deluxe, which would sell for $830 and $970 per unit, respectively. The costs of manufacturing these new models are as follows:

	Economy			Deluxe
Variable manufacturing cost		41	% below Standard	$	595
Variable marketing cost		5	% above Standard		Twice Standard

Total fixed product and period costs are expected to remain unchanged. Cora expects to sell 2,200 units of the Economy model and 1,950 units of Deluxe model per month. The company cannot expand its production capacity beyond its current level of 5,500 units.

Required:

1.	If Standard Model is the only product ,what would the Operating income be?

2-a.

Suppose that a supplier is willing to supply 1,350 units of the Standard model at a price of $340 per unit. Also assume that the company can sell all that it can produce of the remaining two models. Should the offer of the supplier be accepted?

	Yes
	No

2-b.

Which of the model should produced?

	Standard Model
	Economy Model
	Delux Model