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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Introducing a new product, profitability Santos Company is considering introducing a new compact disc player model at a price of $105 per unit. Santos’s controller has compiled the following incremental cost information based on an estimate of 120,000 units of sales annually for the new product:Â
Direct materials cost…………………………… $3,600,000
Direct labor cost………………………………... $2,400,000
Variable manufacturing overhead……………… $1,200,000
Sales commission………………………………. 10% of sales
Fixed cost………………………………………. $2,000,000
The sales manager expects the introduction of the new model to result in a reduction in sales of the existing model from 300,000 to 240,000 units. The contribution margin for the existing model is $20 per unit.Â
RequiredÂ
(a) Determine the total impact on Santos’s profit from the introduction of the new model.Â
(b) Should Santos introduce the new model? Explain.
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