Clear View, a manufacturer of an inexpensive line of tablets, distributes its products to large retailers. The product line consists of three models of tablets:

Model Selling Price/Unit Variable Cost/Unit Demand/Year

(price to retailers) (units)

Model A $350 $200 2,000

Model B $500 $250 1,000

Model C $600 $280 500

Clear View is considering adding a fourth model to the product line. This model would be sold to retailers for $750. The variable cost of this unit is $450. The demand on this new Model D is estimated to be 300 units per year.

Sixty percent of these unit sales of the new model are expected to come from other models already being manufactured by Clear View (10% from Model A, 30% from Model B, and 60% from Model C).

Clear View will incur a fixed cost of $40,000 to add the new model to the product line. Based on the preceding data, should Clear View add the new Model D? Explain your rationale.

Can you please explain step by step on how to get the Yearly Demand and Yearly Contribution Margin for models A, B, C, D?

Also, how do you get the incremental contribution?

1 2 3 Clear View Contribution prior to Model D introduction Tablet Model Selling price/unit Variable cost/unit Contribution margin/unit Yearly Demand Yearly Contribution Margin 5 Model A 6 Model B 7 Model C 8 Total Yearly Contribution 150 250 320 2,000 1,000 350 200 250 280 300000 250000 160000 710000 10 Contribution prior to Model D introduction Selling price/unit Variable cost/unit Contribution margin/unit Yearly Demand 12 Tablet Model 13 14 Model A 15 Model B 16 Model C 17 Model D 18 Total Yearly Contribution 19 20 21 incremental Contribution Margin 22 Incremental fixed costs 23 24 Yearly Contribution Margin Remarks for demand calculation 150 250 320 300 less 10% less 30% less 60% 350 200 250 280 450 750 40,000