Note: You MUST show all of your work in order for any partial oredit to be given

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Note: You MUST show all of your work in order for any partial oredit to be given. Type your calculations, reasoning and answers clearly use the folioweg gide “two decimal s os for rounding oormah percentage _ one decimal point, (t) units _ upward to next ful unit, and (c) armey Drone Concepts, Inc. (OC) manufacturers a line of drones that are distributed to largo rotailers. The line cormists of four models of drones The following data is available regarding the models: DCI Selling Price per Unit $600 $550 525 $500 Variable Cost per Unit $350 $300 $325 $300 DemandYear (unita) 1,500 1,400 1,375 1,250 Model D1 Model D2 Model D3 Model D4 Drone Concepts is considering the addition of a fifth model to its line of drones. This model would be sold to retailers for $700. The variable oost of this unit is $526. The demand for the new Model D5 is estimated to be 1,700 units per year. Sixty percent of these unit sales of the new model is expected to come from other models already being manufactured by Drone Concopts (15 percent from Model D1, 25 percent from Model D2, 30 percent from Model D3, and 30 percent from new model to the line Based on the preceding data, should DCI add the new Model D5 to its line of drones? Why or why not? Please be specific and remember to show all work CLEARLY

Explanation / Answer

Profits of the business before addition of D5= $1250,000

Profits of the business after addition of D5

Contribution of D5 = 700-525 = 175

Sales which come from other models = 1700*60% = 1020

Sales of D1 = 1500- 1020*15% = 1347

Sales of D2= 1400- 1020*25% = 1145

Sales of D3= 1375- 1020*30% = 1069

Sales of D4 = 1250-30%*1020 = 944

Profitability chart is as follows

After additional fixed cost deduction net profits = 1323100- 380000 = $943100

SInce the total profits of the business have dropped to $943,100 , the company should NOT add D5 to its product line.

Model Contribution= SP- VC Sales Profits= Contribution * Sales D1 250 1500 375000 D2 250 1400 350000 D3 200 1375 275000 D4 200 1250 250000 Total 1250000

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