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Anonymous

Dec 17, 2024

1. Max Leonard, vice president of Marketing for Dysk Computer, Inc must decide whether to introduce a mid-priced version of the firm’s

Max Leonard, the Vice President of Marketing for Dysk Computer, Inc., must decide whether to introduce a mid-priced version of the firm’s DC 6900 personal computer product line, named the DC 6900-X. The DC 6900-X would be priced at $5,000, with unit variable costs of $1,750. Projections from an independent marketing research firm indicate that the DC 6900-X could achieve a sales volume of 50,000 units in its first year of commercialization. It is anticipated that half of this volume will come from competitors' personal computers and overall market growth. However, a consumer research study suggests that 30 percent of the DC 6900-X sales volume would be drawn from the higher-priced DC 6900-Omega personal computer, which retails for $4,000 and has unit variable costs of $2,000. Additionally, 20 percent of the DC 6900-X sales volume is expected to come from the economy-priced DC 6900-Alpha personal computer, priced at $2,500, with unit variable costs of $1,250. The DC 6900-Omega is projected to sell 40,000 units next year, while the DC 6900-Alpha is expected to achieve sales of 60,000 units. The fixed costs associated with launching the DC 6900-X are forecasted to be $1 million during the first year of commercialization. Should Mr. Leonard proceed with adding the DC 6900-X model to the line of personal computers?

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3 Answers

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Anonymous

Nov 22, 2024

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     TotalExpected sales volume          40,000              60,000Unit Price                                $4,000              $2,500 Variable cost per unit            $2,000               $1,250Contribution per unit            $2,000                $1,250Total contribution margin   $80 million          $75 million       $155 millionLess lost contribution         $30 million       $12.5 million        $42.5 millionNet contribution margin from old products =                          $112.5 millionb) Lost Contribution:a. DC6900-0mega30% of 50,000 * $2,000 = $30 millionb. DC6900-Alpha20% of 50,000 * $1,250 = $12.5 millionTotal lost contribution =    $42.5 million     c) Sales of DC6900-X:Expected sales volume          50,000Unit price                                $5,000Variable cost per unit             $1,750Contribution per unit             $3,250 ($5,000 - $1,750)Total contribution margin     $162.5 million ($3,250 * 50,000)Identifiable fixed cost                $1.0 millionNet contribution margin       $161.5 millionContribution (old products)  $112.5 millionTotal 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.
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