Answer:
Dysk Computer, Inc.
Yes. Mr. Leonard should quickly add the DC6900-X model to the line of personal computers.
Dysk Computers will be making more profits (contribution margin) following the addition of the new model than it would be generating from selling only the DC6900-Omega and Alpha models.
Explanation:
a) Data and Calculations:
Contribution without the DC6900-X:
DC6900-0mega DC6900-Alpha Total
Expected sales volume 40,000 60,000
Unit Price $4,000 $2,500
Variable cost per unit $2,000 $1,250
Contribution per unit $2,000 $1,250
Total contribution margin $80 million $75 million $155 million
Less lost contribution $30 million $12.5 million $42.5 million
Net contribution margin from old products = $112.5 million
b) Lost Contribution:
a. DC6900-0mega
30% of 50,000 * $2,000 = $30 million
b. DC6900-Alpha
20% of 50,000 * $1,250 = $12.5 million
Total lost contribution = $42.5 million
c) Sales of DC6900-X:
Expected sales volume 50,000
Unit price $5,000
Variable cost per unit $1,750
Contribution per unit $3,250 ($5,000 - $1,750)
Total contribution margin $162.5 million ($3,250 * 50,000)
Identifiable fixed cost $1.0 million
Net contribution margin $161.5 million
Contribution (old products) $112.5 million
Total new contribution $274.0 million ($161.5 + $112.5 million)
d) If the new product is not launched, Dysk Computers will make $155 million total contribution margin from selling its DC6900-Omega and DC6900-Alpha personal computers. With the launch of DC6900-X, its total contribution margin will skyrocket to $274 million after taking into account the lost sales and contribution of $42.5 million that will result from the launch of this new pc. Should Dysk launch the model? Yes.
