Question
Nova Smart Phones sells two smart phone models and is considering introducing a third phone to the market. The existing models are the Communicator and
Nova Smart Phones sells two smart phone models and is considering introducing a third phone to the market. The existing models are the Communicator and the SweetTalker. The Communicator has a wholesale price of $110, a variable cost per unit of $55 and sells 1.0 million units per annum. The SweetTalker has a wholesale price of $135, a variable cost per unit of $60 and sells 450,000 units per annum. The new model, the Dominator, would have a wholesale price of $200, a variable cost per unit of $100 and is projected to sell 350,000 units per annum. 35% of the sales of the Dominator are expected to come from people who would normally purchase the Communicator and an additional 25% of the Dominator's sales will likely come from people who would normally purchase the SweetTalker. Producing the Dominator will add $250,000 to Nova's fixed costs. Should the company add the Dominator to their product line? Why?
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