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Your company is planning on introducing a new residential smoke detector at the start of next year. The COS 2 0 1 3 carbon monoxide
Your company is planning on introducing a new residential smoke detector at the start of next year. The COS 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 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, interconnectability for up to units, an alarm pause silencer feature, an dB alarm pattern, a year warranty and is UL & ULc listed.
The COS 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 $ and has unit variable costs of $ The LifeSaver II will be priced at $ and will carry unit variable costs of $ First year LifeSaver II sales are projected at units. The company had expected to sell LifeSaver I alarms, without the introduction of LifeSaver II While difficult to estimate, the company believes that about LifeSaver Is will be cannibalized by the introduction of the LifeSaver II
Calculate the projected change in total contribution margin if the LifeSaver II is introduced.
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