Question $5$

$\frac{0}{10}$ points

Your company is planning on introducing a new residential smoke detector at the start of next year. The

COS$2013$ carbon monoxide and smoke alarm $($to be called the LifeSaver II$)$ monitors and detects harmful

smoke and carbon monoxide gas. It measures the concentration of $CO$ or smoke and sounds a loud alarm

pattern when a potentially harmful level is reached. The alarm is designed to detect both fast burning and

slow smoldering fires. The type of alarm is visibly indicated by an alarm icon. The new model is a $120$ volt

hardwire combination smoke and carbon monoxide alarm, using the latest ionization, photoelectric and

semiconductor technology. Features include visual alarm icons $($for both smoke and CO$),$ instant test and

retest feature, inter$-$connectability for up to $12$ units, an alarm pause silencer feature, an $85dB$ alarm

pattern, a $5$ year warranty and is UL & ULc listed.

The COS$2013$ is clearly superior to your other lines but will actually carry a lower price due to the lower

cost of the new technology. Your company also realizes that competitors possess similar technology and

cost structures which necessitate the introduction of the new alarm. Your company will continue to sell its

current product: the LifeSaver I. Your boss has asked you to assess the impact of cannibalization on the

company's projected total contribution margin.

The LifeSaver I is priced at $$45$ and has unit variable costs of $$27.$ The LifeSaver II will be priced at $$41$

and will carry unit variable costs of $$18.$ First year LifeSaver II sales are projected at $375,000$ units. The

company had expected to sell $450,000$ LifeSaver I alarms, without the introduction of LifeSaver II$.$ While

difficult to estimate, the company believes that about $200,000$ LifeSaver I$\text{'}$s will be cannibalized by the

introduction of the LifeSaver II$.$

Calculate the projected $2013$ change in total contribution margin if the LifeSaver II is introduced.

Answer:

$8,075,000(5,025,000)$