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Max Leonard, VP of Marketing for DYSK computer, Inc., must decide whether to introduce a mid-priced version of the firm?s super computer product line?the DC
Max Leonard, VP of Marketing for DYSK computer, Inc., must decide whether to introduce a mid-priced version of the firm?s super computer product line?the DC X5. This new model would sell for $3,900, with unit variable costs of $1,800. Sales projection indicates that this new product would achieve a sales volume of 50,000 units in its first year of introduction. Furthermore, half of this volume would come from new customer purchase, but it?s predicted that 30 percent of the sales volume would come from the company?s higher-priced DC Omega model, which sells for $5,900 (with variable costs of $2,200). Another 20 percent of the X model?s sales volume would come from the economy-priced DC Alpha, priced at $2,500 (with variable costs of $1,200). in other words, half of X5?s volume would be due to cannibalization. As a result of this new model sale?s cannibalization effect, the Omega model?s sales volume s expected to be 40,000 next year, and the Alpha?s 60,000 next year. The advertising and promotional cost of launching the X model is forecasted to be $2 million during the first year. Should Mr. Leonard add the X5 model to the product line? (Use break even analysis to make you case and show your calculations.)
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