Question

Question 3 Note: You MUST show all of your work in order for any partial credit to be given. Type your calculations, reasoning and answers clearly. Use the following guidelines for rounding decimals (a) percentage = one decimal point, (b) units - upward to next full unit, and (c) currency - two decimal points. Drone Concepts, Inc. (DCI) manufacturers a line of drones that are distributed to large retailers. The line consists of four models of drones. The following data is available regarding the models: Variable Cost DCI Selling Price Model per Unit per Unit Demand/Year (units) 1,500 1,400 1,375 $700 Model D1 Model D2 $350 $300 $325 $650 $625 Model D3 $300 1,250 $500 Model D4 Drone Concepts is considering the addition of a fifth model to its line of drones. This model would be sold to retailers for $750. The variable cost of this unit is $575. The demand for the new Model D5 is estimated to be 1,800 units per year. Fifty percent of these unit sales of the new model is expected to come from other models already being manufactured by Drone Concepts (20 percent from Model D1, 20 percent from Model D2, 30 percent from Model D3, and 30 percent from Model D4). Drone Concepts will NOT incur any fixed cost to add the new model to the line. Based on the preceding data, should DCI add the new Model D5 to its line of drones? Why or why not? (Remember to type all calculations CLEARLY)

Answer 1

Demand 1500 1400 Model Model D1 Model D2 Model D3 Model D4 Model D5 Selling Price Variable cost 700 350 650 300 625 325 500 300 750 New demand 1320 1220 1105 Model 5 demand-(Demand *20%*50%) Model 5 demand-(Demand *20%*50%) Model 5 demand-(Demand *30%*50%) Model 5 demand-(Demand *30%*50%) 1375 1250 980 575 1800 Original Profit = Fixed Cost of new model = 1677500 1731500 (Selling Price - VC)*Demand (Selling Price - VC)*New Demand DCI can add the new model D5 to its line of drones why because Profit of new model is grater than the original model

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