Golden Gate Fashions, Inc. a high-fashion dress manufacturer, is planning to mar
ID: 2445057 • Letter: G
Question
Golden Gate Fashions, Inc. a high-fashion dress manufacturer, is planning to market a new cocktail dress for the coming season. Golden Gate Fashions supplies retailers primarily on the west coast.
Four yards of material are required to lay out the dress pattern. Some material remains after cutting, which can be sold as remnants. The leftover material also could be used to manufacture a matching handbag and an accessory cape to be worn about the shoulders. However, if the leftover material is to be used for the cape and handbag, more care will be required in the cutting operation, which will increase the cutting costs.
The company expects to sell 1,250 dresses. Market research reveals that dress sales will be 20 percent higher if a matching cape and handbag are available. The market research indicates that the cape and handbag will be salable only as accessories with the dress. The combination of dresses, capes, and handbags expected to be sold by retailers is as follows:
The material used in the dress costs $20.00 a yard or $80.00 for each dress. The cost of cutting the dress if the accessory cape and handbag are not manufactured is estimated at $32.00 a dress, and the resulting remnants can be sold for $8.00 per dress. If the accessory cape and handbag are manufactured, the cutting costs will be increased by $14.40 per dress and there will be no salable remnants. The selling prices and the costs to complete the three items once they are cut are as follows:
Calculate Golden Gate Fashions’ incremental profit or loss from manufacturing the accessory capes and handbags in conjunction with the dresses.
Golden Gate Fashions, Inc. a high-fashion dress manufacturer, is planning to market a new cocktail dress for the coming season. Golden Gate Fashions supplies retailers primarily on the west coast.
Explanation / Answer
Golden Gate Fashions
Statement Showing Calculation Of profit when only dress manufactured
Particulars
Manufacturing Only Dress
Number of Dress
1250
Cost
Material and Cutting Cost @ $ 104 (80+32-8)
130,000
Other Cost @ $128
160,000
Total Cost (a)
290,000
Sales Revenue
Sales @ $320 (b)
400,000
Profit (b-a)
110,000
Statement Showing Calculation Of profit when dress along with accessories manufactured
Particulars
Dress + Bag + Cape
Dress + Cape
Dress + Bag
Dress
Total
Number of units (a)
1050
(1500 x 0.70)
90
(1500 x .06)
225
(1500 x 0.15)
135
(1500 x .09)
1500
Sales
Selling Price per unit (b)
379.20
(320+44+15.20)
364
(320+44)
335.20
(320+15.20)
320
Sales (a xb)
398,160
32,760
75,420
43,200
549,540
Cost
Material and Cutting Cost
($126.40 x 1500)
189,600
Other Cost per unit
169.60
(128+31.20+10.40)
159.20
(128+31.20)
138.40
(128+10.40)
128
Other Cost
178,080
14,328
31,140
17,280
240,828
Total Cost
430,428
Profit
119,112
Statement of Incremental profit /Loss
Particulars
Only Dress
Dress with Accessories
Incremental Figures
Sales
400,000
549,540
149,540
Cost
290,000
430,428
140,428
Profit
110,000
119,112
9,112
Incremental Profit = $ 9112
Particulars
Manufacturing Only Dress
Number of Dress
1250
Cost
Material and Cutting Cost @ $ 104 (80+32-8)
130,000
Other Cost @ $128
160,000
Total Cost (a)
290,000
Sales Revenue
Sales @ $320 (b)
400,000
Profit (b-a)
110,000
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