Determine the manhattan fashions incremental profit

Question

Manhattan Fashions, Inc., a high-fashion dress manufacturer, is planning to market a new cocktail dress for the coming season. Manhattan Fashions supplies retailers in the east and mid-Atlantic states.

Four yards of material are required to lay out the dress pattern. Some material remains after cutting, which can be sold as remnants. The leftover material also could be used to manufacture a matching cape and handbag. However, if the leftover material is to be used for the cape and handbag, more care will be required in the cutting operation, which will increase the cutting costs.

The company expects to sell 1,600 dresses. Market research reveals that dress sales will be 50 percent higher if a matching cape and handbag are available. The market research indicates that the cape and handbag will be salable only as accessories with the dress. The combination of dresses, capes, and handbags expected to be sold by retailers are as follows:

	Percent of Total
Complete sets of dress, cape, and handbag		61	%
Dress and cape		5
Dress and handbag		15
Dress only		19
Total		100	%

The material used in the dress costs $13.25 a yard, or $53 for each dress. The cost of cutting the dress if the cape and handbag are not manufactured is estimated at $19 a dress, and the resulting remnants can be sold for $9 per dress. If the cape and handbag are manufactured, the cutting costs will be increased by $6 per dress and there will be no salable remnants. The selling prices and the costs to complete the three items once they are cut are as follows:

	Selling Price per Unit			Unit Cost to Complete (excludes costs of material and cutting operation)
Dress	$	209		$	88
Cape		35.90			27.90
Handbag		14.90			11.90

Required:

1.	Calculate Manhattan Fashions' incremental profit or loss from manufacturing the capes and handbags in conjunction with the dresses. (Round your intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

(Click to select)Incremental profit or Incremental loss

$

2.	Identify any qualitative factors that could influence the company's management in its decision to manufacture capes and handbags to match the dresses. (You may select more than one answer. Click the box with a check mark for the correct answer and click to empty the box for the wrong answer.)
	Accuracy of forecasted increase in dress sales. Budgeted sales revenue of the company for the year. Accuracy of forecasted product mix. Competition from other manufacturers of women's apparel. Quality of material used in the manufacture. Company image of a dress manufacturer versus a more extensive supplier of women's apparel. Whether there is adequate capacity (labor, facilities, storage, etc.).