$1\mathrm{.}3(12$ marks$)-$ Relevant costs $-$ Chapter $8$

Tabar Inc. Is a small firm involved in the production and sale of electronic business

products. The company is known for its attention to quality and innovation.

During the past $15$ months, a new product has been under development that allows

hand$-$held access to e$-$mail and video images. Tabar code$-$named the product

"Wireless Wonder" and has been developing two models; Basic and Ultra.

Development costs have amounted to $$121,000$ for the Basic unit and $$175,000$ for the

Ultra unit. The total market demand for each model is expected to be $40,000$ units, and

management anticipates being able to obtain the following market shares:

Basic: $25\%$

Ultra: $20\%$

Forecasted data is as follows:

$*$sales commissions are computed on the basis of sales dollars

Since the start of development work on the Wireless Wonder, advances in technology

have altered the market somewhat, and management now believes the company can

introduce only one of the two models. This belief was based on the findings form a

consultant's report that ACME had commissioned at a cost of $$23,000.$ The total fixed

overhead is expected to be the same, regardless of which product is manufactured:

Required:

a$)$ Compute the per$-$unit contribution margin for both models.

b$)$ Which of the forecasted data in the table above should be ignore in

making the production$-$introduction decision? For what reason?

c$)$ Prepare a financial analysis and determine which of the two models

should be introduced.

d$)$ What other factors should Tabar Inc. consider before making a final

decision of which of the two products to market.