Yars Company operates a small factory in which it manufactures two products: A and B. Production and
Question:
Yars Company operates a small factory in which it manufactures two products: A and B. Production and sales results for last year were as follows:
For purposes of simplicity, the firm averages total fixed costs over the total number of units of A and B produced and sold. The research department has developed a new product C as a replacement for product B. Market studies show that Yars Company could sell 15,000 units of C next year at a price of $80; the variable costs per unit of C are $45. The introduction of product C will lead to a 10% increase in demand for product A and discontinuation of product B. If the company does not introduce the new product, it expects next year's results to be the same as last year's.
Instructions
Determine whether Yars Company should introduce product C next year. Explain why or why not. Show calculations to support your decision.
Step by Step Answer:
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly