Drone Concepts, Inc. (DCI) manufacturers a line of drones that are distributed to largeretailers. The line consists of four models of drones. The following data is available regardingthe models:DCI Selling PriceVariable CostDemand/YearModelper Unitper Unit(units)Model D1$735$1151,535Model D2$515$1102,865Model D3$625$1053,535Model D4$765$1353,300Drone Concepts is considering the addition of a fifth model to its line of drones. This modelwould be sold to retailers for $950. The variable cost of this unit is $415. The demand forthe new Model D5 is estimated to be 2,000 units per year. Sixty percent of these unit salesof the new model is expected to come from other models already being manufactured byDrone Concepts (10 percent from Model D1, 30 percent from Model D2, 40 percent fromModel D3, and 20 percent from Model D4). Drone Concepts will incur a fixed cost of$350,000 to add the new model to the line.Based on the preceding data, should DCI add the new Model D5 to its line of drones? Whyor why not? (Please be specific and remember to show all work CLEARLY and highlightyour answer in order to receive full credit otherwise points will be deducted)

Approach to the question: Contribution Margin for Existing Models:Model D1: $620Model D2: $405Model…

Answered: Drone Concepts, Inc. (DCI)…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 17E: Product cost method of product costing Smart Stream Inc. uses the product cost method of applying...

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Product cost method of product costing Smart Stream Inc. uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cell phones are as follows: Smart Stream desires a profit equal to a 30% return on invested assets of 1,200,000. A. Determine the amount of desired profit from the production and sale of 10,000 cell phones. B. Determine the product cost per unit for the production of 10,000 cell phones. C. Determine the product cost markup percentage for cell phones. D. Determine the selling price of cell phones.

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