Before you attempt this question, you should work through Computer illustration 4-1 in the Lesson Notes. Wow! Is that B-10 model ever a loser! I say the time has come to cut back its production and shift our resources toward the new C-20 model, said Rory Moncur, executive vice- president of Hammer Products, Inc. Just look at this statement Ive received from accounting. The C-20 is generating twice as much in profits as the B-10, and it has only about one-fifth as much in sales. Im convinced that our future depends on the C-20. The year-end statement to which Rory was referring follows: HAMMER PRODUCTS, INC. Income Statement Total Product Model B-10 C-20 Sales Cost of goods sold 14,500,000 (9,000,000 ) 12,000,000 (7,200,000 ) 2,500,000 (1,800,000 ) Gross margin 5,500,000 4,800,000 700,000 Less: Selling and administrative expenses (4,900,000 ) (4,600,000 ) (300,000 ) Net income 600,000 200,000 400,000 Number of units produced and sold Net income per unit 60,000 3,33 10,000 40.00 The numbers sure look that way, replied Connie Collins, the companys sales manager. But why isnt the competition more excited about the C-20? I know we have only been producing the model for three years, but Im surprised that more of our competitors havent recognized what a cash cow it is. I think its our new automated plant, replied Rory. Now it takes only one direct labour-hour to produce a unit of the B-10 and one-and-a-half direct labour-hours to produce a unit of the C-20. Thats considerably less than it used to take us. I agree that automation is wonderful, replied Connie. I suppose thats how were able to hold down the price of the C-20. Borst Company in Germany tried to bring out a C-20 but discovered they couldnt touch our price. But Borst is killing us on the B-10 by undercutting our price with some of the best customers. I suppose theyll pick up all of our B-10 business if we move out of that market. But who cares? We dont even have to advertise the C-20; it just seems to sell itself.