Exercise 7-17

Twyla Company operates a small factory in which it manufactures two products: C and D. Production and sales results for last year were as follows. For purposes of simplicity, the firm averages total fixed costs over the total number of units of C and D produced and sold. The research department has developed a new product (E) as a replacement for product D. Market studies show that Twyla Company could sell 11,910 units of E next year at a price of $116; the variable cost per unit of E is $41. The introduction of product E will lead to a 11% increase in demand for product C and discontinuation of product D. If the company does not introduce the new product, it expects next year