The Famous Hockey Player Children’s Society makes and sells autographed hockey sticks to raise funds. Other than the autograph name, all the sticks are the same. The society normally produces and sells 80,000 hockey sticks each year at a selling price of $40 per unit. The company’s unit cost at this level of activity is given below:
Direct materials $ 9.50
Direct labour 10.00
Variable manufacturing support 2.80
Fixed manufacturing support 5.00 ($400,000 total)
Variable selling expenses 1.70
Fixed selling expenses 4.50 ($360,000 total)
Total cost per unit $33.50
Required:
Assume that the Society has sufficient capacity to produce 100,000 hockey sticks each year without any increase in fixed manufacturing support costs. The society could increase sales by 25 percent above the present 80,000 units each year if it were willing to increase the fixed selling expenses by $150,000. Would the increased fixed selling expenses be justified? Explain.