Cora Corporation produces refrigerator units The companys no

Cora Corporation produces refrigerator units. The company’s normal production and sales volume of Standard units is 7,500 units per month, and units sell for $1,090 each. The costs of manufacturing and marketing a Standard model are as follows:

Solution

Calculation of operating income from sale of standard model: Particulars Amount Amount sales 7500*1090 81,75,000 less: Variable cost 7500*550 41,25,000 contribution 40,50,000 less:Spefific fixed cost 7,50,000 Operating income 33,00,000 Statement showing operating income if production capacity is fully utilised only for one specific product: Particulars standard Economy Delux sales 81,75,000 27,30,000 28,87,500 less: Variable cost 41,25,000 11,40,300 25,71,250 contribution 40,50,000 15,89,700 3,16,250 less:Spefific fixed cost 7,50,000 7,50,000 7,50,000 Operating income 33,00,000 8,39,700 -4,33,750 As operating income is high in case of stanndrad model, it will be beneficial to produce standard model. If supplier is willing to supply 1750 units at a price of $420 per unit Particulars amount Variable cost of producing standard units 550 less: Purchase price offered by supplier 420 Saving in cost 130 Particulars amount Additional contribution 1172500 W.N -1 Less: loss on outsourcing 9,45,000 W.N-2 Net benefit 2,27,500 Benefit for unit 2,27,500/1750 130 Decision : it is advisable to purchase the product if the company chooses for diversifying the product line. W.N-1 Particulars amount amount sales 1750*1090 1907500 less: variable cost 1750*420 735000 Contribution 1172500 W.N-2 Particulars amount amount sales 1750*1090 1907500 less: variable cost 1750*550 962500 Contribution 945000 Calculation of operating income from sale of standard model: Particulars Amount Amount sales 7500*1090 81,75,000 less: Variable cost 7500*550 41,25,000 contribution 40,50,000 less:Spefific fixed cost 7,50,000 Operating income 33,00,000 Statement showing operating income if production capacity is fully utilised only for one specific product: Particulars standard Economy Delux sales 81,75,000 27,30,000 28,87,500 less: Variable cost 41,25,000 11,40,300 25,71,250 contribution 40,50,000 15,89,700 3,16,250 less:Spefific fixed cost 7,50,000 7,50,000 7,50,000 Operating income 33,00,000 8,39,700 -4,33,750 As operating income is high in case of stanndrad model, it will be beneficial to produce standard model. If supplier is willing to supply 1750 units at a price of $420 per unit Particulars amount Variable cost of producing standard units 550 less: Purchase price offered by supplier 420 Saving in cost 130 Particulars amount Additional contribution 1172500 W.N -1 Less: loss on outsourcing 9,45,000 W.N-2 Net benefit 2,27,500 Benefit for unit 2,27,500/1750 130 Decision : it is advisable to purchase the product if the company chooses for diversifying the product line. W.N-1 Particulars amount amount sales 1750*1090 1907500 less: variable cost 1750*420 735000 Contribution 1172500 W.N-2 Particulars amount amount sales 1750*1090 1907500 less: variable cost 1750*550 962500 Contribution 945000