Exercise 20-17

Tharp Company operates a small factory in which it manufactures two products: C and D. Production and sales results for last year were as follows.

		C		D
Units sold		9,000		19,900
Selling price per unit		$94		$75
Variable cost per unit		53		39
Fixed cost per unit		20		20

For purposes of simplicity, the firm averages total fixed costs over the total number of units of C and D produced and sold. The research department has developed a new product (E) as a replacement for product D. Market studies show that Tharp Company could sell 11,100 units of E next year at a price of $115; the variable cost per unit of E is $42. The introduction of product E will lead to a 11% increase in demand for product C and discontinuation of product D. If the company does not introduce the new product, it expects next years results to be the same as last years. Compute company profit with products C & D and with products C & E.

Net profit with products C & D		$
Net profit with products C & E		$

Should Tharp Company introduce product E next year?

YesNo