Question

Larry Miller, general manager of McCormick Software, must decide when to release the new version of McCormick’s spreadsheet package, Easyspread 2.0. Development of Easyspread 2.0 is complete; however, the company has not yet produced the compact discs and user manuals. The software can be shipped starting July 1, 2013.
The major problem is that McCormick has overstocked the previous version of its spreadsheet package, Easyspread 1.0. Miller knows that once Easyspread 2.0 is introduced, McCormick will not be able to sell any more units of Easyspread 1.0. Rather than just throwing away the inventory of Easyspread 1.0, Miller is wondering if it might be better to continue to sell Easyspread 1.0 for the next 3 months and introduce Easyspread 2.0 on October 1, 2013, when the inventory of Easyspread 1.0 will be sold out.
The following information is available:




Development cost per unit for each product equals the total costs of developing the software product divided by the anticipated unit sales over the life of the product. Marketing and administrative costs are fixed costs in 2013, incurred to support all marketing and administrative activities of McCormick Software. Marketing and administrative costs are allocated to products on the basis of the budgeted revenues of each product. The preceding unit costs assume Easyspread 2.0 will be introduced on October 1, 2013.

Required
1. On the basis of financial considerations alone, should Miller introduce Easyspread 2.0 on July 1, 2013, or wait until October 1, 2013? Show your calculations, clearly identifying relevant and irrelevant revenues and costs.
2. What other factors might Larry Miller consider in making adecision?


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  • CreatedJanuary 15, 2015
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