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:
|
Model |
Selling Price per unit |
Variable Cost per unit |
Demand/Year (units) |
|
Model LX1 |
$175 |
$100 |
2,000 |
|
Model LX2 |
$250 |
$125 |
1,000 |
|
Model LX3 |
$300 |
$140 |
500 |
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.
- What is the total Gross Profit Margin for VCI without LX4?HINT: Calculate GPM for each model and add them together.
- What is the Gross Profit Margin for models LX1-2-3 with thegiven reductions in sales from the introduction of LX4?
- What is the Gross Profit Margin for LX4?
- 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?
Answer:
Answer is attached below
Please rate my answer
"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
