Video Concepts, Inc. (VCI) manufactures a line of videocassette recorders (VCRs) that are distributed to large...

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Finance

Video Concepts, Inc. (VCI) manufactures a line of videocassetterecorders (VCRs) that are distributed to large retailers. The lineconsists of three models of VCRs. The following data are availableregarding the models:
Model VCR Selling Price per Unit Variable Cost per Unit Demand/Year (units)
Model LX1 $175 $100 2,000
Model LX2 $250 $125 1,000
Model LX3 $300 $140 500
VCI is considering the addition of a fourth model to its line ofVCRs:
This model would be sold to retailers for $375.
The variable cost of this unit is $225.
The demand for the new Model LX4 is estimated to be 300 unitsper year.
Sixty percent of these unit sales of the new model is expectedto come from other models already being manufactured by VCI:
20 percent from Model LX1
30 percent from Model LX2
50 percent from Model LX3.
VCI will incur a fixed cost of $20,000 to add the new model tothe line.
Answer the following:
Based on the preceding data, should VCI add the new Model LX4to its line of VCRs? Why?
Make sure you are responding to each part of everyquestion. You do not have to show your work for eachquestion, but I recommend it because partial credit will begiven for completing the right steps even if your finalanswer is incorrect.

Answer & Explanation Solved by verified expert

4.3 Ratings (938 Votes)

Total profit under three models is as follows Model Selling price Variable cost Contribution cost Demand Profit Model LX1 175 100 75 2000 150000 Model LX2 250 125 125 1000 125000 Model LX3 300 140 160 500 80000 Total profit 355000 Model LX4 See Answer

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Video Concepts, Inc. (VCI) manufactures a line of videocassetterecorders (VCRs) that are distributed to large retailers. The lineconsists of three models of VCRs. The following data are availableregarding the models:ModelVCR Selling Price per UnitVariable Cost per UnitDemand/Year (units)Model LX1$175$1002,000Model LX2$250$1251,000Model LX3$300$140500VCI is considering the addition of a fourth model to its line ofVCRs:This model would be sold to retailers for $375.The variable cost of this unit is $225.The demand for the new Model LX4 is estimated to be 300 unitsper year.Sixty percent of these unit sales of the new model is expectedto come from other models already being manufactured by VCI:20 percent from Model LX130 percent from Model LX250 percent from Model LX3.VCI will incur a fixed cost of $20,000 to add the new model tothe line.Answer the following:Based on the preceding data, should VCI add the new Model LX4to its line of VCRs? Why?Make sure you are responding to each part of everyquestion. You do not have to show your work for eachquestion, but I recommend it because partial credit will begiven for completing the right steps even if your finalanswer is incorrect.

Model	VCR Selling Price per Unit	Variable Cost per Unit	Demand/Year (units)
Model LX1	$175	$100	2,000
Model LX2	$250	$125	1,000
Model LX3	$300	$140	500