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The Bouncy Company sells 50,000 Slinkies annually for $20 per unit. Manufacturing costs total $11 per...

The Bouncy Company sells 50,000 Slinkies annually for $20 per unit. Manufacturing costs total $11 per unit. If Slinkies are processed further into Slinky Dogs at an additional cost of $6 per unit, Slinky Dog will sell for $30 per unit. Variable selling costs are $3 per unit for Slinky and $5 per unit for Slinky Dog. What happens to Bouncy’s profits if it chooses to produce Slinky Dogs instead of Slinkies?

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Answer #1

Profit if Slinkies are sold = ($20 - $11 - $3) X $50,000 = $300,00

Profit if Slinky Dog are sold = ($30 - $11 - $6 - $5) X $50,000 = $400,000

Profits will increase by $100,000 (ie. $400,000 - $300,000)

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