comm 305

A B Units sold 8,500 19,800 Selling price per unit $94 $75 Variable costs per unit 52 49 Fixed costs per unit 20 20 For purposes of simplicity, the firm averages total fixed costs over the total number of units of A and B produced and sold. The research department has developed a new product (C) as a replacement for product B. Market studies show that Straus Company could sell 10,600 units of C next year at a price of $121; the variable costs per unit of C are $47. The introduction of product C will lead to a 10% increase in demand for product A and discontinuation of product B. If the company does not introduce the new product, it expects next year's results to be the same as this year's. Determine whether Straus Company should introduce product C next year. Why or why not? Company profit with Products A and B: A B Total Units sold 8500 19800 Sales revenue $ 799000 $ 1485000 $ 2284000 Less v Variable costs 170000 396000 566000 Contribution margin v 629000 $ 1089000 863900 Less v Fixed costs Net income (loss) v