P19.38 LO19.7 Introducing a new product: manufacturer EBP Ltd is a small firm involved in the production and sale of electronic business products. The company is bidad well known for its attention to quality and innovation. During the past 15 months, a new product has been under development that allows users handheld access to email and video images. EBP named the product 'Wireless Wizard' and has been quietly designing two models: Standard and Enhanced. Development costs have amounted to $181500 and $262500, respectively. The total market demand for each model is expected to be 40000 units, and management anticipates being able to obtain the following market shares: Standard, 25 per cent; Enhanced, 20 per cent. Forecast data follow: Projected selling price Enhanced $495.00 Standard $375.00 Production cost per unit: Direct material 42.00 67.50 Direct labour 22.50 30.00 Variable overhead 36.00 48.00 Fixed overhead 54.00 72.00 Marketing and advertising per product line 195000 300000 Sales salaries per product line 85500 85.500 Sales commissions* Calculated on the basis of sales dollars. 10% 10% 93019 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 EBP paying $34 500 for an in-depth market study. Required: a. 1. Calculate the per unit contribution margin for both models. sblbe 2. Which of the data above should be ignored in making the product introduction decision? For what reason? 3. Prepare a financial analysis and determine which of the two models should be introduced. 4. What other factors should EBP consider before a final decision is made?
P19.38 LO19.7 Introducing a new product: manufacturer EBP Ltd is a small firm involved in the production and sale of electronic business products. The company is bidad well known for its attention to quality and innovation. During the past 15 months, a new product has been under development that allows users handheld access to email and video images. EBP named the product 'Wireless Wizard' and has been quietly designing two models: Standard and Enhanced. Development costs have amounted to $181500 and $262500, respectively. The total market demand for each model is expected to be 40000 units, and management anticipates being able to obtain the following market shares: Standard, 25 per cent; Enhanced, 20 per cent. Forecast data follow: Projected selling price Enhanced $495.00 Standard $375.00 Production cost per unit: Direct material 42.00 67.50 Direct labour 22.50 30.00 Variable overhead 36.00 48.00 Fixed overhead 54.00 72.00 Marketing and advertising per product line 195000 300000 Sales salaries per product line 85500 85.500 Sales commissions* Calculated on the basis of sales dollars. 10% 10% 93019 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 EBP paying $34 500 for an in-depth market study. Required: a. 1. Calculate the per unit contribution margin for both models. sblbe 2. Which of the data above should be ignored in making the product introduction decision? For what reason? 3. Prepare a financial analysis and determine which of the two models should be introduced. 4. What other factors should EBP consider before a final decision is made?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Im doing it as homework for extra studies, this isnt an assignment, i need help
Transcribed Image Text:P19.38
LO19.7
Introducing a new product: manufacturer
EBP Ltd is a small firm involved in the production and sale of electronic business products. The company is
bidad
well known for its attention to quality and innovation.
During the past 15 months, a new product has been under development that allows users handheld
access to email and video images. EBP named the product 'Wireless Wizard' and has been quietly designing
two models: Standard and Enhanced. Development costs have amounted to $181500 and $262500,
respectively. The total market demand for each model is expected to be 40000 units, and management
anticipates being able to obtain the following market shares: Standard, 25 per cent; Enhanced, 20 per cent.
Forecast data follow:
Projected selling price
Enhanced
$495.00
Standard
$375.00
Production cost per unit:
Direct material
42.00
67.50
Direct labour
22.50
30.00
Variable overhead
36.00
48.00
Fixed overhead
54.00
72.00
Marketing and advertising per product line
195000
300000
Sales salaries per product line
85500
85.500
Sales commissions*
Calculated on the basis of sales dollars.
10%
10%
Transcribed Image Text:93019 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 EBP paying $34 500 for an in-depth market study.
Required:
a. 1. Calculate the per unit contribution margin for both models.
sblbe
2. Which of the data above should be ignored in making the product introduction decision? For what reason?
3. Prepare a financial analysis and determine which of the two models should be introduced.
4. What other factors should EBP consider before a final decision is made?
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