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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
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.
![Total contribution margin
Income
Basic
0
SA
Enhanced
0](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb87f551d-3fc5-4766-9e3a-b14ac4833b45%2Fbd198c7f-43d1-4475-9a89-bc06140fc491%2Fttxghua_processed.png&w=3840&q=75)
Transcribed Image Text:Total contribution margin
Income
Basic
0
SA
Enhanced
0
![Johnson and Gomez, Incorporated, is a small firm involved in the production and sale of electronic business products. The
company is well known for its attention to quality and innovation.
During the past 15 months, a new product has been under development that allows users improved access to e-mail and
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 $184,500 and $265,500, respectively. The total
market demand for each model is expected to be 42,000 units, and management anticipates being able to obtain the
following market shares: Basic, 25 percent; Enhanced, 20 percent. Forecasted data follow.
Projected selling price
Per-unit production costs:
Direct material
Direct labor
Variable overhead
Basic
$ 355.00
44.00
23.50
38.00
197,000
10%
Enhanced
$ 455.00
70.50
32.00
50.00
310,000
10%
Marketing and advertising (fixed but avoidable)
Sales commissions*
*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. Consultants confirmed this
fact not too long ago, with Johnson and Gomez paying $34,700 for an in-depth market study. Sales salaries (excluding
commission) will be $86,500 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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb87f551d-3fc5-4766-9e3a-b14ac4833b45%2Fbd198c7f-43d1-4475-9a89-bc06140fc491%2F2qx9g3_processed.png&w=3840&q=75)
Transcribed Image Text:Johnson and Gomez, Incorporated, is a small firm involved in the production and sale of electronic business products. The
company is well known for its attention to quality and innovation.
During the past 15 months, a new product has been under development that allows users improved access to e-mail and
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 $184,500 and $265,500, respectively. The total
market demand for each model is expected to be 42,000 units, and management anticipates being able to obtain the
following market shares: Basic, 25 percent; Enhanced, 20 percent. Forecasted data follow.
Projected selling price
Per-unit production costs:
Direct material
Direct labor
Variable overhead
Basic
$ 355.00
44.00
23.50
38.00
197,000
10%
Enhanced
$ 455.00
70.50
32.00
50.00
310,000
10%
Marketing and advertising (fixed but avoidable)
Sales commissions*
*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. Consultants confirmed this
fact not too long ago, with Johnson and Gomez paying $34,700 for an in-depth market study. Sales salaries (excluding
commission) will be $86,500 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.
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