Dreamland pillow company sells the ‘old softy’ model for $20 each. one pillow requires two pounds of raw materials and one hour of
Dreamland Pillow Company sells the "Old Softy" model for $20 each. Each pillow requires two pounds of raw materials and one hour of direct labor to manufacture. The cost of raw materials is $3 per pound, and direct production labor is paid $4 per hour. Additionally, fixed supervisory costs amount to $2,000 per month, and Dreamland rents its factory on a five-year lease for $4,000 per month. All costs are considered production costs.
a. How many pillows must Dreamland produce and sell each month to achieve a monthly gross profit of $1,000?
b. Another firm has offered to produce "Old Softy" pillows and sell them to Dreamland for $12 each. While Dreamland cannot avoid the factory lease payments, it can eliminate all labor costs if it does not produce these pillows. Under these conditions, how many "Old Softy" pillows must Dreamland sell to earn a monthly gross profit of $1,000?
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