Relevant costs, opportunity costs. Gavin Martin, the general manager of Oregano Software, must decide when to release the new version of Oregano’s spreadsheet package, Easyspread 2.0. Development of Easyspread 2.0 is complete; however, the diskettes, compact discs, and user manuals have not yet been produced. The product can be shipped starting July 1, 2017.The major problem is that Oregano has overstocked the previous version of its spreadsheet package, Easyspread 1.0. Martin knows that once Easyspread 2.0 is introduced, Oregano will not be able to sell any more units of Easyspread 1.0. Rather than just throwing away the inventory of Easyspread 1.0, Martin is wondering if it might be better to continue to sell Easyspread 1.0 for the next three months and introduce Easyspread 2.0 on October 1, 2017, when the inventory of Easyspread 1.0 will be sold out.The following information is available: Easyspread 2.0Easyspread 1.0$215$165Selling priceVariable cost per unit of diskettes, compact discs, user manualsDevelopment cost per unitMarketing and administrative cost per unitTotal cost per unitOperating income per unit382495604131174115$ 41$ 50Development cost per unit for each product equals the total costs of developing the software productdivided by the anticipated unit sales over the life of the product. Marketing and administrative costsare fixed costs in 2017, incurred to support all marketing and administrative activities of OreganoSoftware. Marketing and administrative costs are allocated to products on the basis of the budgetedrevenues of each product. The preceding unit costs assume Easyspread 2.0 will be introduced onOctober 1, 2017.1. On the basis of financial considerations alone, should Martin introduce Easyspread 2.0 on July 1, 2017,or wait until October 1, 2017? Show your calculations, clearly identifying relevant and irrelevant rev-enues and costs.Required2. What other factors might Gavin Martin consider in making a decision?

1. State whether E2 product should be introduced or not.From the above calculation, E2 has greater…

Answered: Easyspread 2.0 Easyspread 1.0 $215 $165…

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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Relevant costs, opportunity costs. Gavin Martin, the general manager of Oregano Software, must decide when to release the new version of Oregano’s spreadsheet package, Easyspread 2.0. Development of Easyspread 2.0 is complete; however, the diskettes, compact discs, and user manuals have not yet been produced. The product can be shipped starting July 1, 2017.

The major problem is that Oregano has overstocked the previous version of its spreadsheet package, Easyspread 1.0. Martin knows that once Easyspread 2.0 is introduced, Oregano will not be able to sell any more units of Easyspread 1.0. Rather than just throwing away the inventory of Easyspread 1.0, Martin is wondering if it might be better to continue to sell Easyspread 1.0 for the next three months and introduce Easyspread 2.0 on October 1, 2017, when the inventory of Easyspread 1.0 will be sold out.

The following information is available:

Easyspread 2.0
Easyspread 1.0
$215
$165
Selling price
Variable cost per unit of diskettes, compact discs, user manuals
Development cost per unit
Marketing and administrative cost per unit
Total cost per unit
Operating income per unit
38
24
95
60
41
31
174
115
$ 41
$ 50
Development cost per unit for each product equals the total costs of developing the software product
divided by the anticipated unit sales over the life of the product. Marketing and administrative costs
are fixed costs in 2017, incurred to support all marketing and administrative activities of Oregano
Software. Marketing and administrative costs are allocated to products on the basis of the budgeted
revenues of each product. The preceding unit costs assume Easyspread 2.0 will be introduced on
October 1, 2017.
1. On the basis of financial considerations alone, should Martin introduce Easyspread 2.0 on July 1, 2017,
or wait until October 1, 2017? Show your calculations, clearly identifying relevant and irrelevant rev-
enues and costs.
Required
2. What other factors might Gavin Martin consider in making a decision?

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