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 $204,000 and $285,000, respectively. The total market demand for each model is expected to be 55,000 units, and management anticipates being able to obtain the following market shares: Basic, 30 percent; Enhanced, 25 percent. Forecasted data follow. Projected selling price Per-unit production costs: Direct material Direct labor Variable overhead Projected selling price Per-unit production costs: Direct material Direct labor Variable overhead Marketing and advertising (fixed but avoidable) Sales commissions" Basic $ 420.00 57.00 30.00 51.00 Basic $ 420.00 57.00 30.00 51.00 210,000 Enhanced $ 520.00 15% 90.00 45.00 63.00 Enhanced $ 520.00 90.00 45.00 63.00 375,000 20% *Computed on the basis of sales dollars. Since the start of development work on the Wireless Wizard, advances in technology have altered the market somewhat, and management now believes that the company can introduce only one of the two models. Consultants confirmed this fact not too long ago, with Johnson and Gomez paying $36,000 for an in-depth market study, Sales salaries (excluding commission) will be $93,000 no matter which product is sold. The marketing and advertising costs indicated for each product are incurred only if that product is sold. Other fixed overhead is expected to be the same, regardless of which product is introduced.
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 $204,000 and $285,000, respectively. The total market demand for each model is expected to be 55,000 units, and management anticipates being able to obtain the following market shares: Basic, 30 percent; Enhanced, 25 percent. Forecasted data follow. Projected selling price Per-unit production costs: Direct material Direct labor Variable overhead Projected selling price Per-unit production costs: Direct material Direct labor Variable overhead Marketing and advertising (fixed but avoidable) Sales commissions" Basic $ 420.00 57.00 30.00 51.00 Basic $ 420.00 57.00 30.00 51.00 210,000 Enhanced $ 520.00 15% 90.00 45.00 63.00 Enhanced $ 520.00 90.00 45.00 63.00 375,000 20% *Computed on the basis of sales dollars. Since the start of development work on the Wireless Wizard, advances in technology have altered the market somewhat, and management now believes that the company can introduce only one of the two models. Consultants confirmed this fact not too long ago, with Johnson and Gomez paying $36,000 for an in-depth market study, Sales salaries (excluding commission) will be $93,000 no matter which product is sold. The marketing and advertising costs indicated for each product are incurred only if that product is sold. Other fixed overhead is expected to be the same, regardless of which product is introduced.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter1: Introduction To Cost Management
Section: Chapter Questions
Problem 12P: Emery Manufacturing Company produces component parts for the farm equipment industry and has...
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
Transcribed Image Text:3-a. Prepare a financial analysis and determine which of the two models should be introduced.
3-b. The company would be advised to select the Enhanced model or Basic model.
Complete this question by entering your answers in the tabs below.
Req 3A
Prepare a financial analysis and determine which of the two models should be introduced. (Round intermediate calculations to
2 decimal places.)
Req 38
Total contribution margin
Income
Req 3A
$
Basic
Req 3B
0 $
3-a. Prepare a financial analysis and determine which of the two models should be introduced.
3-b. The company would be advised to select the Enhanced model or Basic model.
Enhanced
Complete this question by entering your answers in the tabs below.
0
The company would be advised to select the
The company would be advised to select the Enhanced model or Basic model.
Transcribed Image Text: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 $204,000 and $285,000,
respectively. The total market demand for each model is expected to be 55,000 units, and management
anticipates being able to obtain the following market shares: Basic, 30 percent; Enhanced, 25 percent. Forecasted
data follow.
Projected selling price
Per-unit production costs:
Direct material
Direct labor
Variable overhead
Projected selling price
Per-unit production costs:
Direct material
Direct labor
Variable overhead
Marketing and advertising (fixed but avoidable)
Sales commissions
Basic
$ 420.00
57.00
30.00
51.00
Basic
$ 420.00
57.00
30.00
51.00
210,000
Enhanced
$ 520.00
15%
90.00
45.00
63.00
Enhanced
$ 520.00
90.00
45.00
63.00
375,000
20%
*Computed on the basis of sales dollars.
Since the start of development work on the Wireless Wizard, advances in technology have altered the market
somewhat, and management now believes that the company can introduce only one of the two models.
Consultants confirmed this fact not too long ago, with Johnson and Gomez paying $36,000 for an in-depth market
study, Sales salaries (excluding commission) will be $93,000 no matter which product is sold. The marketing and
advertising costs indicated for each product are incurred only if that product is sold. Other fixed overhead is
expected to be the same, regardless of which product is introduced.
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