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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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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.

The image displays a table with a blue header and two columns labeled "Basic" and "Enhanced." Below the headers, the table has two rows with the following details: 1. **Total contribution margin** - Basic: Empty - Enhanced: Empty 2. **Income** - Basic: $0 - Enhanced: $0 This table is designed to compare the financial metrics of two different categories or product versions: "Basic" and "Enhanced." The "Total contribution margin" is currently unspecified for both, while the "Income" for both categories is $0.
Transcribed Image Text:The image displays a table with a blue header and two columns labeled "Basic" and "Enhanced." Below the headers, the table has two rows with the following details: 1. **Total contribution margin** - Basic: Empty - Enhanced: Empty 2. **Income** - Basic: $0 - Enhanced: $0 This table is designed to compare the financial metrics of two different categories or product versions: "Basic" and "Enhanced." The "Total contribution margin" is currently unspecified for both, while the "Income" for both categories is $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 email 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. | | Basic | Enhanced | |------------------------------|------------|------------| | Projected selling price | $355.00 | $455.00 | | Per-unit production costs: | | | | Direct material | 44.00 | 70.50 | | Direct labor | 23.50 | 32.00 | | Variable overhead | 38.00 | 50.00 | | Marketing and advertising (fixed but avoidable) | 197,000 | 310,000 | | Sales commissions* | 10% | 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. 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.
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 email 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. | | Basic | Enhanced | |------------------------------|------------|------------| | Projected selling price | $355.00 | $455.00 | | Per-unit production costs: | | | | Direct material | 44.00 | 70.50 | | Direct labor | 23.50 | 32.00 | | Variable overhead | 38.00 | 50.00 | | Marketing and advertising (fixed but avoidable) | 197,000 | 310,000 | | Sales commissions* | 10% | 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. 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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