Managerial Accounting: Tools For Business Decision Making, Seventh Edition Wileyplus Card

7th Edition

ISBN: 9781118680698

Author: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel

Publisher: John Wiley & Sons Inc

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Textbook Question

Chapter 7, Problem 7.17E

Tharp Company operates a small factory in which it manufactures two products: C and D. Production and sales results for last year were as follows.

	C	D
Units sold	9,000	20,000
Selling price per unit	$95	$75
Variable cost per unit	50	40
Fixed cost per unit	24	24

For purposes of simplicity, the firm averages total fixed costs over the total number of units of C and D produced and sold.

The research department has developed a new product (E) as a replacement for product D. Market studies show that Tharp Company could sell 10,000 units of E next year at a price of $115; the variable cost per unit of E is $45. The introduction of product E will lead to a 10% increase in demand for product C and discontinuation of product D. If the company does not introduce the new product, it expects next year’s results to be the same as last year’s.

Instructions

Should Tharp Company introduce product E next year? Explain why or why not. Show calculations to support your decision.

(CMA-Canada adapted)

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Chapter 7, Problem 7.16E

Chapter 7, Problem 7.18E

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Chapter 7 Solutions

Managerial Accounting: Tools For Business Decision Making, Seventh Edition Wileyplus Card

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Solution Summary: The author explains that Company T should introduce Product E next year. It helps in making deliberate and effective decisions through proper organization of relevant information and defining alternatives.

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