Assume that Microsoft and Sony both plan to introduce a

Assume that Microsoft and Sony both plan to introduce a new hand-held video game. Microsoft plans to use a heavily automated production process to produce its product while Sony plans to use a labor-intensive production process.

The following revenue and cost relationships are provided:

Microsoft Game Sony Game Selling price per unit Variable costs per nit 150 150 Direct materials Direct labor Overhead Selling and administrative 27.00 7.50 7.50 3.00 27.00 30.00 30.00 3.00 Annual fixed costs Overhead Selling and administrative 600,.000$ 135,000 240,000 135,000

(a) Compute the contribution margin per unit for each company.

(b) Prepare a contribution income statement for each company assuming each company sells 8,000 units.

(c) Compute each firm's net income if the number of units sold increases by 10%.

(d) Which firm will have more stable profits when sales change? Why?