During the past 15 months, a new product has been under development that allows users handheld access to e-mail and video images. Martinez named the product the Wireless Wizard and has been quietly designing two models: Standard and Enhanced. Development costs have amounted to $207,000 and $288.000. respectively. The total market demand for each model is expected to be 57.000 units, and management anticipates being able to obtain the following market shares: Standard. 25 percent: Enhanced. 20 percent. Forecasted data follow.
|
|
Standard
|
Enhanced |
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Projected selling price
|
$ 430.00
|
$ 530.00 |
|
Production costs per unit:
|
|
|
|
Direct material
|
59.00
|
93.00 |
|
Direct labor
|
31.00
|
47.00 |
|
Variable overhead
|
53.00
|
65.00 |
|
Marketing and advertising per product line
|
212,000 |
385.000 |
|
Sales salaries per product line
|
94,000
|
94.000 |
|
Sales commissions'
|
15%
|
15%
|
Since the start of development work on the Wireless Wizard, advances in technology have altered the market somewhat, and management now believes that the company can introduce only one of the two models. Consultants confirmed this fact not too long ago. with Martinez paying $36.200 for an in-depth market study. The total fixed overhead is expected to be the same regardless of which product is manufactured.
Required:
1. Compute the per-unit contribution margin for both models.