# Unit Variable Costs

Topics: Variable cost, Marketing, Costs Pages: 2 (408 words) Published: June 28, 2011
Max Leonard, Vice President of Marketing for Dysk Compyer, Inc must decide whether to introduce a mid-priced 2 version of the firm's DC6900 minicomputer product line-the DC6900-X minicomputer. The DC6900-X would sell for \$ 3900, 3 with unit variable costs of \$ 1,800. Projections made by an independent marketing research firm indicate that the DC6900-X 4 would achieve a sales volume of 500,000 units next year, in its first year of commercialization. One-half of the first year's 5 volume would come from competitors minicomputers and market growth. However, a consumer research study indicates 6 that 30% of the DC6900-X sales volume would come from the higher priced DC6900-Omega minicomputer, which sells 7 for \$ 5,900(with unit variable costs of \$2,200). Another 20% of the adc6900-X sales volume would come from the economy 8 priced DC6900- Alpha minicomputer, priced at \$2,500(with unit variable costs of \$1,200). The DC6900-Omega unit volume 9 is expected to be 400,000 units next year, and the DC6900-Alpha is expected to achieve a 600,000-unit sales level. 10 The fixed costs of launching the DC6900-X have been forecast to be \$2 million during the first year of commercialization. 11 Should Mr Leonard add the DC6900-X model to the line of minicomputers.

13 Solution
15
16 Sales Price per Unit\$ 3,900\$ 5,900\$ 2,500
17 Unit Variable Cost\$ 1,800\$ 2,200\$ 1,200
18 Unit Contribution\$ 2,100\$ 3,700\$ 1,300
19
20 Case A (Do Not Introduce DC6900-X)
21 Number of Units sold0 400,000 600,000
22 Total Contribution\$ - \$ 1,480,000,000\$ 780,000,000
23 Total Fixed Costs\$ - \$ - \$ -
24 Net Profit\$ - \$ 1,480,000,000\$ 780,000,000\$ 2,260,000,000 25
26 Case B (Introduce DC6900-X)
27 Number of Units sold (After Cannibalization effect) 500,000...