Exercise 20-17 Tharp Company operates a small factory in which it manufactures t
ID: 341492 • Letter: E
Question
Exercise 20-17 Tharp Company operates a small factory in which it manufactures two products: C and D. Production and sales results for last year were as follows. Units sold Selling price per unit$9$75 Variable cost per unit 47 Fixed cost per unit 9,100 19,000 41 20 20 For purposes of simplicity, the firm averages total fixed costs over the total number of units of C and D produced and sold The research department has developed a new product (E) as a replacement for product D. Market studies show that Tharp Company could sell 11,900 units of E next year at a price of $114; the variable cost per unit of E is $45. The introduction of product E will lead to a 11% increase in demand for product C and discontinuation of product D. If the company does not introduce the new product, it expects next year's results to be the same as last year's. Compute company profit with products C & D and with products C & E. Net profit with products C & D Net profit with products C & E SExplanation / Answer
Calculate net profit with C & D :
Total fixed cost = (9100+19000)*20 = 562000
Net profit with C&D = (427700+646000-562000) = 511700
Calculate net profit with C & E :
Total fixed cost = (9100+19000)*20 = 562000
Net profit with C&E = (474747+821100-562000) = 733847
Company should sell product C&E.
Product C Product D Sales 9100*94= 855400 19000*75=1425000 Variable cost 9100*47 = 427700 19000*41=779000 Contribution margin 427700 646000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.