Suppose both Sony and Microsoft plan to introduce a new handheld video game. Sony plans to use a highly automated production process to produce its product, while Microsoft plans to use a labor-intensive production process. The following revenue and cost relationships are provided:

	sony game	microsoft game
Sale Price per Unit	$100	$100
Variable costs per unit
Direct materials	$18.00	$18.00
Direct labour	5.00	20.00
General expenses	5.00	20.00
sales and administrative	2.00	2.00
annual fixed costs
General expenses	$400,000	$160,000
sales and administrative	90.000	90.000

Required:

Calculate the contribution margin per unit of each company.

Prepare a contribution income statement for each company assuming that each company sells 8,000 units.

Calculate the net income of each company if the number of units sold increases by 10%.

Which company will have more stable earnings when sales change? Because?

Problem 2: The Cox Company produces and sells toasters. The following cost information assumes a production and sales volume of 12,000 units:

Required:

Calculate the budgeted sales price per unit assuming that Cox uses a cost-plus pricing strategy and a profit margin equal to 50% of the cost of production.

Calculate the total fixed costs of the company.

Calculate the company's contribution margin per unit given the budgeted sales price you calculated in Requirement 1.

Calculate the company's breakeven point in units and dollars.

Using the unit contribution margin, calculate the firm's estimated profit if 12,000 units are sold.