Liguanea Pharmaceuticals Limited (LPL) currently sells a product the “sovereign” for $2200. This price is based on annual demand. Analysis indicates that if the company increase the price by $100 annual demand will fall by 400 units. At the current price 4,000 units are demanded. The product has the following cost structure per unit:   Direct material $225 Direct labour $75 Direct expenses $150 Variable overheads $90 Fixed overheads $300 Variable selling expense $60 Fixed selling expenses $450   Management wants to know the optimal production quantity and its maximum profits.   Determine the price equation Determine the optimal price and quantity Determine the optimal profits.

Northwest Technology Inc. manufactures and sells two products, digital game players and computer tablets. The fixed costs are $936,000, and the sales mix is 70% game players and 30% computer tablets. The unit selling price and the unit variable cost for each product are as follows: Products Unit Selling Price Unit Variable Cost Game players $ 50 $30     Tablets 120 80     a.  Compute the break-even sales (units) for the overall product, E.units b.  How many units of each product, game players and tablets, would be sold at the break-even point? Digital game players   units Computer tablets   units

Alpine Luggage has a capacity to produce 430,000 sultcases per year. The company is currently producing and selling 350,000 units per year at a selling price of $400 per case. The cost of producing and selling one case follows: Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs Total costs Selling price per case Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs Net profit (loss) per case The company has received a special order for 40,000 sultcases at a price of $249 per case. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $52 per sultcase. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations: Sales revenue Variable costs Manufacturing Selling and…

Carlyle Lighting Products produces two different types of lamps: a floor lamp and a desk lamp. Floor lamps sell for $30 and desk lamps sell for $20. The projected income statement for the upcoming year follows: Sales                                  $600,000 Less: Variable costs            400,000 Contribution margin            200,000 Less: Fixed costs                 150,000 Operating income                $50,000 The owner of Carlyle’s estimates that 60 percent of the sales revenues will be produced by floor lamps and the remaining 40 percent by desk lamps. Floor lamps are also responsible for 60 percent of the variable expenses. Of the fixed expenses, one-third are common to both products, and one-half are directly traceable to the floor lamp product line. Required: By what percentage will profits increase with this change in sales volume? What is the theory behind the operating leverage concept?