1a. The accountant used the following formula to determine average cost per unit for the copier
1b. It makes sense to sell the copiers to the petroleum company. If you sell the 4,000 copiers for $1200 you will raise your current sales numbers which are currently down. This strategy would increase Dover’s revenue with low costs of production.
2a. If Dover chooses to accept the project sales will increase from 15 million to 19.8 million. COGS would increase from 9 million to 12 million therefor increasing gross profit from 6 million to 7.2 million. FOC and Dep remain the same. EBIT will go from (100,000) without selling the printers to 1,100,000 if the project is accepted. Interest remains the same making the EBT -850,000 if the project is not accepted, or 350,000 if the project is accepted. The additional revenue would be 1.2 million if the project is accepted.
2b. The additional cost would be $3,600,000 (900)(4,000) to COGS. The rest of the expenses are fixed so therefor increasing production would not change these figures.
3a. I believe this project is a good idea for Dover. They need to find a way to increase earnings and this project will help with that. Although they are not incredibly profitable with this project it will create brand awareness, which may help increase sales and earnings. The main problems are the fixed costs that cannot be avoided in the current state of business. Any project creating profit for Dover should be accepted.