Question

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: DCI Selling Price Variable Cost Model Demand/Year (units) per Unit per Unit Model D1 $700 $350 1,500 Model D2 $650 $300 1,400 Model D3 $325 1,375 $625 $500 Model D4 $300 1,250 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

Answer 1

salution & 490,000 Model sales Revenue contribution Variable cost Margin. Model D1 (1500X 4700) = $ 1059000 (1500x9 350) = 525,000 4525,000 Model D2 (1400 x $650) = ¢ 910,000 (1400x 1300) $420,000 Model D3 (1375 x 4625)=4859,37(1375* $325) -$ 446,875 4 412,500 Model D4 (1250x4500) = $625,000 11250 x $300)= $375,000 $250,000 $3444,375 $ 1766,875 1677,500 slote hi

then 50% of sales come as added If Modelos from different model sale from existing Modess=50 existing x 1800 100 900 unite Model D1 = 1500 900 20 100 х 1500 180 1320. units Model D2 = 1400 - 20 loo x 900 1400 - Iso 1220 units Model 03=1375 30 x 900 1375 - 270= 1105 units Model Du - 1250-30 x qo0 1250 - 270 = 950 units Tcontributi

Model sales Revenue variable cost Contribution Modelo (1320x 9700)- $ 924,000 (1320% $350131462,000 $462.000 Margin Model D2 (1220 x $650)- $ 793,000 (1290 x 4300); +3660048427,000 Model D3 (1105x$625)- $ 690,625|(1105 x $325)= +359,125$ 331500 Model Dy/ (980x500)= $ 490,000/1980 x $300)=4294,000 $ 196,000 Model DS (18000 $750)= 41350,000/1800 x 4515) = 4315,ooo 1035 ood $ 4207,625 & 28 16, 125/$ 1,731,500 contribution %, a $1731,500 x 100 $4247,625 40.87. x100 48.7%. contribution % if D5 is not solda & 1677,500 $3,444375 Note! - Contribution Margin = Sales- variable cost

ome not add margin % is Model Ds is bution NO, DOI should the new Model D 5 to its uine of drones because if Model is added to the product wine then contribution 40.8% but if not added then the contri- Margin is 48.7%. It means that contoibution margin is skeso decreased when Model DS us added to the product wine. Drone concepts will not incur any fixed cost to add the new model to the vine. Although sales though sales is increased due the new model D5 but contribution margin üs decreased by (48.7 – 40.8) = 719. so DCI should not add the new Model DS to its line of drones, n لن on