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3-a. Prepare a financial analysis and determine which of the two models should be introduced. 3-b. The company would be advised to select the Enhanced model or Basic model.

3-a. Prepare a financial analysis and determine which of the two models should be introduced. 3-b. The company would be advised to select the Enhanced model or Basic model.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Saved Help Save During the past 15 montns, a new proauct nas been under deveiopment that allows users improvea access to e-mail ana video images. Johnson and Gomez code named the product the Wireless Wizard and has been quietly designing two models: Basic and Enhanced. Development costs have amounted to $190,500 and $271,500, respectively. The total market demand for each model is expected to be 46,000 units, and management anticipates being able to obtain the following market shares: Basic, 30 percent; Enhanced, 25 percent. Forecasted data follow. Basic Enhanced Projected selling price Per-unit production costs: Direct material Direct labor $ 375.00 $ 475.00 48.00 76.50 25.50 36.00 Variable overhead 42.00 54.00 Marketing and advertising (fixed but avoidable) Sales commissions* 201,000 10% 330,000 10% *Computed on the basis of sales dollars. Since the start of development work on the Wireless Wizard, advances in technology have altered the market somewhat, and management now believes that the company can introduce only one of the two models.lConsultants confirmed this fact not too long ago, with Johnson and Gomez paying $35,100 for an in-depth market study. Sales salaries (excluding commission) will be $88,500 no matter which product is sold. The marketing and advertising costs indicated for each product are incurred only if that product is sold. Other fixed overhead is expected to be the same, regardless of which product is introduced. 3-a. Prepare a financial analysis and determine which of the two models should be introduced. 3-b. The company would be advised to select the Enhanced model or Basic model. < Prev 8 9 of 14 Next >
Transcribed Image Text:Saved Help Save During the past 15 montns, a new proauct nas been under deveiopment that allows users improvea access to e-mail ana video images. Johnson and Gomez code named the product the Wireless Wizard and has been quietly designing two models: Basic and Enhanced. Development costs have amounted to $190,500 and $271,500, respectively. The total market demand for each model is expected to be 46,000 units, and management anticipates being able to obtain the following market shares: Basic, 30 percent; Enhanced, 25 percent. Forecasted data follow. Basic Enhanced Projected selling price Per-unit production costs: Direct material Direct labor $ 375.00 $ 475.00 48.00 76.50 25.50 36.00 Variable overhead 42.00 54.00 Marketing and advertising (fixed but avoidable) Sales commissions* 201,000 10% 330,000 10% *Computed on the basis of sales dollars. Since the start of development work on the Wireless Wizard, advances in technology have altered the market somewhat, and management now believes that the company can introduce only one of the two models.lConsultants confirmed this fact not too long ago, with Johnson and Gomez paying $35,100 for an in-depth market study. Sales salaries (excluding commission) will be $88,500 no matter which product is sold. The marketing and advertising costs indicated for each product are incurred only if that product is sold. Other fixed overhead is expected to be the same, regardless of which product is introduced. 3-a. Prepare a financial analysis and determine which of the two models should be introduced. 3-b. The company would be advised to select the Enhanced model or Basic model. < Prev 8 9 of 14 Next >
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