Reference no: EM132666001

Johnson and Gomez, Inc., 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 improved access to e-mail and video images. Johnson and Gomez code named the product the Wireless Wizard and has been quietly designing two models: Basic and Enhanced. Development costs have amounted to $210,000 and $291,000, respectively. The total market demand for each model is expected to be 59,000 units, and management anticipates being able to obtain the following market shares: Basic, 20 percent; Enhanced, 15 percent. Forecasted data follow.

                                                                                Basic                     Enhanced

Projected selling price                                  $440.00                     $540.00

Per-unit production costs:

Direct material                                               61.00                       96.00

Direct labor                                                  32.00                              49.00

Variable overhead                                             55.00                            67.00

Marketing and advertising (fixed but avoidable) 214,000                         395,000

Sales commissions                                           15%                            15%

Problem 1: Computed on the basis of sales dollars.