Analysis of selling price for a new product Innovation, Inc. has recently developed a new camera that produces instant holographic pictures. The camera is expected to have a limited appeal in the consumer hobby market. The product pricing committee is meeting to determine the potential of the new camera and to determine its selling price.

The sales manager wants the camera priced at $60 each to be appealing to as wide a market as possible. Market penetration is expected to be slow at first but should increase as users start appreciating the camera's features. The sales manager believes that sales should be 1,000 units in the first year, 2,000 in the second year, and 2,400 in subsequent years.

The production manager says that variable cost of the camera is $50 each and the company cannot afford to sell its products for a 17 percent contribution margin. He thinks the price of the camera should be at least $90 each, but admits that at this price sales would probably be 10 percent less than estimated by the sales manager.

The sales manager points out that the camera is not a primary revenue item. For each camera sold, the company can expect to sell 20 rolls of film per year. The film sells for $10 per roll and has a variable cost of $3. Fixed cost is $300,000 per year.

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REQUIRED Prepare a schedule of expected sales and income for the first 3 years under each of the pricing options and decide which price should be charged for the camera.