Head Pops Inc. manufactures two models of solar-powered, noise-canceling headphones: Sun Sound and Ear Bling models. The company is operating at less than full capacity. Market research indicates that 28,000 additional Sun Sound and 30,000 additional Ear Bling headphones could be sold. The operating income by unit of product is as follows:

Sun Sound Headphone Ear Bling Headphone
Sales price $140.00 $125.00
Variable cost of goods sold 78.40 70.00
Manufacturing margin $61.60 $55.00
Variable selling and administrative expenses 28.00 25.00
Contribution margin $33.60 $30.00
Fixed manufacturing costs 14.00 12.50
Income from operations $19.60 $17.50

Required:
Prepare an analysis indicating the increase or decrease in total profitability if 28,000 additional Sun Sound and 30,000 additional Ear Bling headphones are produced and sold, assuming that there is sufficient capacity for the additional production. Round your per-unit answers to two decimal places.

Answer and Explanation:

The preparation of the analysis is presented below

Particulars                Sun Sound Headphones       Ear Bling Headphones

Unit volume increase28,000                           30,000

x Contribution margin

per unit                         $33.6                          $30

Increase in profitability$940,800$900,000

We simply multiplied the increase in volume unit with the contribution margin per unit so that the increase in profitability could arrive

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1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know