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Saved Problem 14-49 Introducing a New Product (LO 14-4, 14-5) [The following information applies to the questions displayed below.) 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 $211,500 and $292,500, respectively. The total market demand for each model is expected to be 60,000 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 $ 445.00 $ 545.00 Production costs per unit: Direct material 62.00 97.50 Direct labor 32.50 50.00 Variable overhead 56.00 68.00 Marketing and advertising per 215,000 400,000 product line Sales salaries per product line 95,500 95,500 Sales commissions 10% 20% *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 $36,500 for an in-depth market study. The total fixed overhead is expected to be the same regardless of which product is manufactured. Required: 1. Compute the per-unit contribution margin for both models. (Round your answers to 2 decimal places.) Standard Enhanced Per-unit contribution margin 2. Which of the following should be ignored in making the product-introduction decision? (Select all that apply.) Development costs Market study Marketing and Advertising Fixed manufacturing overhead Variable manufacturing overhead Sales salaries Problem 14-49 Part 3 3-a. Prepare a financial analysis and determine which of the two models should be Introduced Standard Enhanced Total contribution margin Income $ $ 0 $ o 3-b. The company would be advised to select the Standard model Enhanced model Problem 14-49 Part 4 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 two products Break-even points Data validity Previous years' sales trends Production feasibility Effects, if any, on existing product sales
