Relevant costs, opportunity costs. Mitch McCalister, the general manager of Time Sprint, must decide when to release
Question:
Relevant costs, opportunity costs. Mitch McCalister, the general manager of Time Sprint, must decide when to release the new version of Time Sprint’s fitness watch, TS-12. Development of TS-12 is complete, but the product has not yet been produced. The product can be shipped starting July 1, 2020. The major problem is that Time Sprint has overstocked the previous version of its fitness watch, TS-11. McCalister knows that once TS-12 is introduced, Time Sprint will not be able to sell any more units of TS-11. Rather than just throwing away the inventory of TS-11, McCalister is wondering whether it might be better to continue to sell TS-11 for the next 3 months and introduce TS-12 on October 1, 2020, when the inventory of TS-11 will be sold out. The following information is available:
Development cost per unit for each product equals the total costs of developing the watch divided by the anticipated unit sales over the life of the product. Marketing and administrative costs are fixed costs in 2020, incurred to support all marketing and administrative activities of Time Sprint and are allocated to products on the basis of the budgeted revenues of each product. The preceding unit costs assume TS-12 will be introduced on October 1, 2020.
Required
1. On the basis of financial considerations alone, should McCalister introduce TS-12 on July 1, 2020, or wait until October 1, 2020? Show your calculations, clearly identifying relevant and irrelevant revenues and costs.
2. What other factors might McCalister consider in making a decision?
Expert Answer:
Every day people are inundated with decisions big and small Understanding how people arrive at their choices is an area of cognitive psychology that has received attention Theories have been generated ... View the full answer
