Question
Max Leonard, Vice President of Marketing for Dysk Computer, Inc., must decide whether to introduce a mid-priced version of the firm's DC6900 minicomputer product line-the
Max Leonard, Vice President of Marketing for Dysk Computer, Inc., must decide whether to introduce a mid-priced version of the firm's DC6900 minicomputer product line-the DC6900-X minicomputer. The DC6900-X would sell for $3,900, with unit variable costs of $1,800. Projections made by an independent marketing research firm indicate that the DC6900-X would achieve a sales volume of 500,000 units next year, in its first year of commercialization. One-half of the first year's volume would come from competitors' minicomputers and market growth. However, a consumer research study indicates that 30 percent of the DC6900-X sales volume would come from the higher-priced DC6900-omega minicomputer, which sells for $5,900 (with unit variable costs of $2,200). Another 20 percent of the DC6900-X sales volume would come from the economy-priced DC6900-Alpha minicomputer priced at $2,500 (with unit variable costs of $1,200). The DC6900-Omega unit volume is expected to be 400,000 units next year, and the DC6900-Alplia is expected to achieve a 600,000-unit sales level. The fixed costs of launching the DC6900-X have been forecast to be $2 million during the first year of commercialization.
If Mr. Leonard introduces the DC6900-X, what will be the total first-year change in profits for the firm?
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