QUESTION 3 Answer the following: Trailblazer Electronics (TE) manufactures a line of DVD players that are distributed to large retailers. The line consists of three models of DVD players. The following data are available regarding the models: Model Selling Price per Unit Variable Cost per Unit Demand/Year (units) Model TE1 $150 $100 2,000 Model TE2 $250 $125 1,000 Model TE3 $300 $140 500 Trailblazer is considering the addition of a fourth model to its line of DVD players: This model would be sold to retailers for $375. The variable cost of this unit is $225. The demand for the new Model TE4 is estimated to be 300 units per year. Seventy percent of these unit sales of the new model is expected to come from other models already being manufactured by Trailblazer: 10 percent from Model TE1 30 percent from Model TE2 60 percent from Model TE3. Trailblazer will incur a fixed cost of $20,000 to add the new model to the line.

Answer the following: Based on the preceding data, should Trailblazer add the new Model TE4 to its line of DVD Players? What is the impact from cannibalization? What is the increase/decrease in contribution after adding the new model to the product line? Make sure you are responding to each part of every question. You MUST show your detailed calculations for each question. Partial credit will be given for completing the right steps even if your final answer is incorrect. Arial 3 (12pt)