The Nikki Beat Company operates a small factory in which it manufactures two products, AG and BD. Production and sales results for the last year were as follows: AG BD Units sold 8,000 20,000 Unit selling price $95 $78 Unit variable cost 50 45 Unit fixed cost 22 22 Fixed costs are spread over the total number of units of AG and BD produced and sold. The research department has developed a new product, CF, as a replacement to product BD. Market studies show that Nikki Beat Company could sell 11,000 units of CF next year at a price of $120; the variable costs per unit of CF are $42. The introduction of product CF will lead to a ten percent increase in demand for product AG and discontinuation of product BD. If the firm does not introduce the new product, the firm expects next year’s results to be the same as last year’s. Required: Prepare a financial analysis to determine whether Nikki Beat Company should introduce product CF next year.
The Nikki Beat Company operates a small factory in which it manufactures two products, AG and BD. Production and sales results for the last year were as follows:
AG BD
Units sold 8,000 20,000
Unit selling price $95 $78
Unit variable cost 50 45
Unit fixed cost 22 22
Fixed costs are spread over the total number of units of AG and BD produced and sold.
The research department has developed a new product, CF, as a replacement to product BD.
Market studies show that Nikki Beat Company could sell 11,000 units of CF next year at a price of $120; the variable costs per unit of CF are $42. The introduction of product CF will lead to a ten percent increase in demand for product AG and discontinuation of product BD. If the firm does not introduce the new product, the firm expects next year’s results to be the same as last year’s.
Required: Prepare a financial analysis to determine whether Nikki Beat Company should introduce product CF next year.
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