Petoskey Electronics Company manufactures specialized products for boats and recreational vehicles using its newly introduced patented engine analytics device. The first-year revenues and costs for the product device are as follows:

The second year the product device was available, Petoskey Company sold only 12,000 units of its device, because a competitor, Charlevoix Supply Company, produced and sold an identical device. Petoskey Company decided to file a lawsuit against the competitor for damages (in the form of lost profits) caused by the patent infringement.

Required:

1. Calculate Petoskey Company’s profit on this product device during the first year it was sold.
2. Assume that Charlevoix Company is liable as alleged by Petoskey Company in the patent infringement lawsuit. Using a relevant analysis perspective, calculate the amount of damages that Petoskey Company experienced during the second year of the new product device as a result of Charlevoix’s patent infringement.
3. Assume that Charlevoix Company is liable as alleged by Petoskey Company in the patent infringement lawsuit. Also, in an effort to mitigate the damages caused by Charlevoix’s patent infringement, Petoskey created an advertising program that resulted in sales decreasing to only 17,000 units (rather than the 12,000 units stated above). The annual cost of the advertising program was $375,000. Using a relevant analysis perspective, calculate the amount of damages that Petoskey Electronic experienced during the second year of the new product device as a result of Charlevoix’s patent infringement.
4. Briefly identify and explain any other relevant (or differential) items that might be included in estimating Petoskey Company’s damages.
5. Briefly explain how the differential analysis conducted by the forensic accountant at either Petoskey Company or Charlevoix Company relates to one of the four data analytic types.

Exhibits 2.5 

Exhibits 2.6

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Selling price Direct materials Direct labor Variable manufacturing overhead Total fixed manufacturing overhead Variable selling and administrative Total fixed selling and administrative Sales and manufacturing volume $500 per unit $175 per unit $ 45 per unit $ 40 per unit $ 1,600,000 $ 30 per unit $ 500,000 25,000 units