QUESTION 2

Sun Microsystems, is a manufacturer of mid-size computers, which are primarily used by medium and small businesses. Sun Microsystemss product line currently consists of three models of mid-size computers. The following data are available regarding the models:

Model	Selling Price per Unit	Variable Cost per Unit	Demand/Year (units)
Model SMX1	$1,800	$1,000	2,500
Model SMX2	$2,700	$1,500	1,000
Model SMX3	$3,000	$2,000	800

Sun Microsystems is considering the addition of a fourth model to its line of mid-size computers.

This model, the SMX-4 would be sold for $4,000. The variable cost of this unit is the last 3 digits of your Banner ID The demand for the new Model SMX4 is estimated to be 500 units per year. Forty percent (40%) of the new models unit sales are expected to come from other models already being manufactured by Sun Microsystems 20% of the cannibalized amount from Model SMX-1, 30% from Model SMX-2, 50% from Model SMX-3. Sun Microsystems will incur a fixed cost of $300,000 to add the new model SMX-4 to its product line.

The president of Sun Microsystems will only fund projects which show a positive cash flow by the end of the first year of the project.

Answer the following (please show work):

• What is your Banner ID?
• What is the contribution for the 3 original product (SMX1, SMX2, SMX3) prior to SMX4?
• What is unit contribution for SMX-4
• Based on the your analysis of the above data, should Sun Microsystems add the new Model SMX-4 to its line of mid-size computers?
• Why (Support answer with detailed analysis of demand and contribution).