Roland Company operates a small factory in which it manufactures two products: A and B. Production and sales result for last year were as follow:
|
|
A |
|
B |
|
| Units sold |
|
8,000 |
|
|
16,000 |
|
|
| Selling price per unit |
|
65 |
|
|
52 |
|
|
| Variable costs per unit |
|
35 |
|
|
30 |
|
|
| Fixed costs per unit |
|
15 |
|
|
15 |
|
|
For purposes of simplicity, the firm allocates total fixed costs over the total number of units of A and B produced and sold.
The research department has developed a new product (C) as a replacement for product B. Market studies show that Roland Company could sell 11,000 units of C next year at a price of $80, the variable costs per unit of C are $39. The introduction of product C will lead to a 10% increase in demand for product A and discontinuation of product B. If the company does not introduce the new product, it expects next year's result to be the same as last year's.
1. Calculate the net profit if Roland Company introduces Product C.
2. Should Roland Introduce product C ?