Martinez, Inc., is a small firm involved in the production and sale of electronic business products. The company is well known for its attention to quality and innovation.

During the past 15 months, a new product has been under development that allows users handheld access to e-mail and video images. Martinez named the product the Wireless Wizard and has been quietly designing two models: Standard and Enhanced. Development costs have amounted to $184,500 and $265,500, respectively. The total market demand for each model is expected to be 42,000 units, and management anticipates being able to obtain the following market shares: Standard, 25 percent; Enhanced, 20 percent. Forecasted data follow.

	Standard			Enhanced
Projected selling price	$	355.00		$	455.00
Production costs per unit:
Direct material		44.00			70.50
Direct labor		23.50			32.00
Variable overhead		38.00			50.00
Marketing and advertising per product line		197,000			310,000
Sales salaries per product line		86,500			86,500
Sales commissions*		10	%		10	%

*Computed on the basis of sales dollars.

Since the start of development work on the Wireless Wizard, advances in technology have altered the market somewhat, and management now believes that the company can introduce only one of the two models. Consultants confirmed this fact not too long ago, with Martinez paying $34,700 for an in-depth market study. The total fixed overhead is expected to be the same regardless of which product is manufactured.

3.

value: 1.00 points

Required information

Required:

1.

Compute the per-unit contribution margin for both models. (Round your answers to 2 decimal places.)

	Standard	Enhanced
Per-unit contribution margin

4.

value: 1.00 points

Required information

2.	Which of the following should be ignored in making the product-introduction decision? (Select all that apply.)
	-Developement Costs -Market study -Marketing and Advertising -Fixed manufaturing overhead -Variable manufacturing overhead -Sales salaries

value: 7.00 points

Required information

3-a.

Prepare a financial analysis and determine which of the two models should be introduced.

	Standard	Enhanced
Total contribution margin
Add or Subtract Marketing and advertising
Income

3-b.

The company would be advised to select the

	Enhanced model
	Standard model

6.

value: 1.00 points

Required information

4.	What other factors should Martinez consider before a final decision is made? (Select all that apply.)
	-Possibility of merger of the firm with a bigger player -Growth potential of the standard and enhanced models -Competitive products in the marketplace -Aesthetic differences between the tow products -break-even points -Data validity -Previous years' sales trends -production feasibility -Effects, if any, on existing product sales