Unit Variable Costs

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
14 DC6900-X DC6900-Omega DC6900-Alpha Total
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 sold 0 400,000 600,000
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)