Question: Please help solving relevant operating income for below. Larry Miller, the general manager of Herb Software, must decide when to release the new version of
Please help solving relevant operating income for below.
Larry Miller, the general manager of Herb Software, must decide when to release the new version of Herb's spreadsheet package, Easyspread 2.0. Development of Easyspread 2.0 is complete; however, the company has not yet produced the compact discks and The software can be shipped starting July 1, 2013. The major problem is that Herb has overstocked the previous version of its spreadsheet package, Easyspread 1.0. Miller knows that once Easyspread 2.0 is introduced, Herb will not be able to sell any more units 1.0. Rather than just throwing away the inventory of Easyspread 1.0, Miller is wondering if it might be better to continue to sell Easyspread 1.0 for the next 3 months and introduce Easyspread 2.0 on October 1, 2013, when the inventory of Easyspread 1.0 will be following information is available: i (Click to view the information.) Requirements 1. On the basis of financial considerations alone, should Miller introduce Easyspread 2.0 on July 1, 2013, or wait until October 1, 2013? Show your calculations, clearly identifying relevant and irrelevant revenues and costs. 2. What other factors might Larry Miller consider in making a decision? Requirement 1. On the basis of financial considerations alone, should Miller introduce Easyspread 2.0 on July 1, 2013, or wait until October 1, 2013? Show your calculations, clearly identifying relevant and irrelevant revenues and costs Begin by determining whether each item is relevant or irrelevant for this decision. (Make a selection for each item.) . X Easyspread 1.0 Easyspread 2.0 More info Selling price Relevant Relevant Variable cost per unit of compact discs and user manuals Irrelevant Relevant Easyspread 1.0 Easyspread 2.0 Development cost per unit Irrelevant Irrelevant 145 $ 185 Selling price Marketing and administrative cost per unit Irrelevant Irrelevant Variable cost per unit of compact discs and user manuals 24 38 Now calculate the relevant operating income for Easyspread 1.0 and Easyspread 2.0. (Enter a zero for any irrelevant items Development cost per unit 65 115 Easyspread 1.0 Easyspread 2.0 37 Marketing and administrative cost per unit 51 126 204 Relevant revenue per unit Total cost per unit Relevant costs 19 -19 Operating income per unit Variable cost per unit of compact discs and user manuals Development cost per unit for each product equals the total costs of developing the software product divided Development cost per unit by the anticipated unit sales over the life of the product. Marketing and administrative costs are fixed costs in 2013, incurred to support all marketing and administrative activities of Herb Software. Marketing and Marketing and administrative cost per unit administrative costs are allocated to products on the basis of the budgeted revenues of each product. The preceding unit costs assume Easyspread 2.0 will be introduced on October 1, 2013. Total relevant cost per unit Relevant operating income per unit Print Done
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