Calculate the per unit contribution margin for both models

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Reference no: EM132684837

EBP Limited is a small firm involved in the production and sale of electronic business products. The company is well known for its attention to quality and innovation.

During the past 15 months, a new product has been under development that allows users handheld access to email and video images. EBP has been designing two models: Standard and Enhanced. Development costs have amounted to RM181,500 and RM262,500 respectively.

The total market demand for each model is expected to be 40,000 units and management anticipate being able to obtain the following market shares: Standard 25%; Enhanced 20%. EBP paying RM34,500 for an in-depth market study.

Forecast the following data:
Standard (RM) Enhanced (RM)
Projected selling price 375 495
Production cost per unit:
Direct material 42 67.50
Direct labor 22.5 30
Variable overhead 36 48
Fixed overhead 54 72
Marketing and advertising per product line 195,000 300,000
Sales salaries per product line 85,500 85.500

Required:

a) Calculate the per unit contribution margin for both models.

b) Which of the data above should be ignored in making the product introduction decision? For what reason?

c) Prepare a financial analysis and determine which of the models should be introduced.

Reference no: EM132684837

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