Dover International – Average Cost Per Unit for the Copier
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Dover International Case
1a. The accountant used the following formula to determine average cost per unit for the copier
COGS+F0C+Dep+Int
9,000,000+5,500,000+600,000+750,000=15,850,000/10,000
=$1,585
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.
3b. I would not have the same opinion if production was producing at capacity. I think it would not be bright to accept a project with an offer lower than what the full capacity is being sold at.
4a. A Demand Curve is a graph that compares the components of demand for a product or service with the change in its price. The demand can be influenced by customer taste, income of customers, price of similar or related goods, advertising expenditures and number of consumers within the market.
4b. Price elasticity of demand is a measurement of the quantity demanded or bought of a product compared to the relation of the price change of the same product. (%Change in Quantity Demanded/%Change in Price)
4c. 10%/20%
Price Elasticity is equal to 5%. A percentage lower than the price change is considered to be inelastic making this not a realistic elastic product.
4d. They should not continue to produce a product that is considered to be inelastic but has many substitutes in the market