Answer the following: Based on the data provided, make the calculations necessar

Question

Answer the following: Based on the data provided, make the calculations necessary to provide the answers to the following questions: 1. Should VCI add the new Model LX4 to its line of VCRs? 2. Why? (Back up your answer with the calculations you made) Video Concepts, Inc. (VCI) manufactures a line of videocassette recorders (VCRs) that are distributed to large retailers. The line consists of three models of VCRs. The following data are available regarding the models: Model VCR Selling Price per Unit Variable Cost per Unit Demand/Year (units Model LX1 Model LX2 Model LX3 $175 $250 $300 $100 $125 $140 2,000 1,000 500 VCI is considering the addition of a fourth model to its line of VCRs: This model would be sold to retailers for $375. The variable cost of this unit is $225 The demand for the new Model LX4 is estimated to be 300 units per year · Sixty percent of these unit sales of the new model is expected to come from other models already being manufactured by VCI o 10 percent from Model LX1 o 30 percent from Model LX2 o 60 percent from Model LX3. VCI will incur a fixed cost of $20,000 to add the new model to the line.

Explanation / Answer

Original contribution (only 3 models)

Contribution after adding new model LX4 :

60% of unit sales (300 * 0.6 = 180) of the new model comes from :

1. 10% from LX1 = 180 * 0.1 = 18 units

2. 30% from LX2 = 180 * 0.3 = 54units

3. 60% from LX3 = 180 * 0.6 = 108units

But adding the fourth model will incure a fixed cost of $20000.

Thus , the final contribution of manufacturing 4 models would be : $374620 - $20000 = $354620 , which is $380 less than the original contribution with models ($355000).

Model Selling price per unit Variable cost per unit Demand / Year (units) Total contribution LX1 $175 $100 2000 $150000 [ 175 - 100 ] * 2000 LX2 $250 $125 1000 $125000 [ 250 - 125 ] * 1000 LX3 $300 $140 500 $80000 [ 300 - 140 ] * 500 Total $355000

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