EXERCISE 5

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.