Video Concepts, Inc. (VCI) man

Video Concepts, Inc. (VCI) manufactures a line of digitalcameras that are distributed to large retailers. The line consistsof three models. The following data are available regarding themodels:


Selling Price per unit

Variable Cost

per unit

Demand/Year (units)

Model LX1




Model LX2




Model LX3




VCI is considering the addition of the fourth model to its line(LX4). The model would be sold to retailers for $375. The variablecost of this unit is $225. The demand for the new model LX4 isestimated to be 300 units per year. HOWEVER, with the new model,the original three models will see a reduction in demand. Demandfor LX1 will drop 1%, demand for LX2 will drop 5% and demand forLX3 will drop 20%. VCI will incur a fixed cost of $20,000 to addthe new model to the line. Calculate the following to help withyour conclusion.

  1. What is the total Gross Profit Margin for VCI without LX4?HINT: Calculate GPM for each model and add them together.
  2. What is the Gross Profit Margin for models LX1-2-3 with thegiven reductions in sales from the introduction of LX4?
  3. What is the Gross Profit Margin for LX4?
  4. How does this compare to the current situation?  Based on your answers for parts a, b and c, should VCIadd the new Model LX4 to its line of digital cameras (HINT: Don’tforget to include the $20,000 fixed cost for the introduction ofLX4)? Why or why not?


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