=+8-31 KKK Relevant costs, opportunity costs OBJECTIVE 2 Larry Miller, the general manager of Basil Software, must decide when to release the new version of Basil Software’s spreadsheet package, Easyspread 2.0. Development of Easyspread 2.0 is complete; however, compact discs and user manuals have not yet been produced. The product can be shipped starting 1 July 2014.

The major problem is that Basil Software has overstocked the previous version of its spreadsheet package, Easyspread 1.0. Larry knows that once Easyspread 2.0 is introduced, Basil Software will not be able to sell any more units of Easyspread 1.0. Rather than just throwing away the inventory of Easyspread 1.0 (the compact discs and user manuals) Larry is wondering if it might be better to continue to sell Easyspread 1.0 for the next three months and introduce Easyspread 2.0 on 1 October 2014, when the inventory of Easyspread 1.0 will be sold out.

The following information is available:

Easyspread 1.0 Easyspread 2.0 Selling price $160 $195 Variable cost per unit of compact discs, user manuals 25 30 Development cost per unit 70 100 Marketing and administrative cost per unit 35 40 Total cost per unit 130 170 Operating profit per unit $30 $25 Development cost per unit for each product equals the total costs of developing the software product divided by the anticipated unit sales over the life of the product. Marketing and administrative costs are fixed costs in 2014, incurred to support all marketing and administrative activities of Basil Software. Marketing and administrative costs are allocated to products on the basis of the budgeted revenues of each product. The preceding unit costs assume Easyspread 2.0 will be introduced on 1 October 2014.

334 Chapter 8: Decision making and relevant information M08_HORN3377_02_LT_C08.indd 334 2/09/13 3:42 PM Required 1 On the basis of financial considerations alone, should Larry Miller introduce Easyspread 2.0 on 1 July 2014 or wait until