Question

Max Leonard, vice president of Marketing for Dysk Computer, Inc., must decide whether to introduce a midpriced version of the firm's DC6900 personal computer product line -the DC6900-X. The DC6900-X would sell for $3,900, w ith unit variable costs of $1,800. Projections made by an independent marketing research firm indicate that the DC6900-X would achieve a sales volume of 500,000 units next year, in it15 first yea

Answer 1

Answer:

With contribution of $1,050 million to fixed costs, The vice president must introduce the computer

Explanation:

Decision on whether or not to introduce a product relies on the variable cost or Relevant costs. The Vice President must only consider the incremental costs incurred as a result of introducing the new product. Incremental Costs are cost that will be incurred only if they decide to produce and introduce. Incremental costs or Revenue are Relevant cost or incomes that are a resulting of deciding to introduce, if the vice president decides not to introduce then all those incremental relevant costs and revenues will be avoided and not incurred. Fixed costs are irrelevant  costs and are not a factor in deciding as the decision will depend on the contribution by the new product.

Details                                                      DC6900-X

Sales (500,000*$3,900)                       $1,950,000,000

Variable costs (500,000 *$1,800)       -$900,000,000

Contribution                                           $1,050,000,000