Group A.pptx for managerial 1-22

Group A.pptx for managerial 1-22 - only being $4 million, a...

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Click to edit Master subtitle style 10/2/10 Group A Zach Brandt, Kesang Nepali, Mike Maxwell, Kristina Pfeifer
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10/2/10 Chapter 2 Question 2 The Trumbull Company has developed a new product. Trumbull’s chairperson estimates that the new product will increase the firm’s revenues by $5 million per year, and that it will result in extra out-of-pocket costs of $4 million per year, the fully allocated costs (including a percentage of overhead, depreciation, and insurance) being $5.5 million.
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10/2/10 Chapter 2 Question 2 a Trumbull’s chairperson feels that it would not be profitable to introduce this new product. Is the chairperson right? Why or why not? The chairperson is wrong. Trumbull company should produce this new product.
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10/2/10 Why? The new product will increase revenues by $5 million per year and with out of pocket costs
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Unformatted text preview: only being $4 million, a $1 million profit increase will occur. The $5.5 million or allocated cost has already been paid and is considered a sunk cost. A sunk cost is something such as insurance or depreciation that should not be included in determining profit 10/2/10 Chapter 2 Question 2b Trumbull’s vice president for research argues that since the development of this product has already cost about $10 million the firm has little choice but to introduce it. Is the vice president right? Why or why not? The Vice President’s reasons are wrong. 10/2/10 Why? The $10 million is considered a sunk cost and has already been paid and therefore is not a determining factor in production. However, the new product will bring increased revenues and a profit margin of $1 million per year....
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This note was uploaded on 09/30/2010 for the course ECON 12345 taught by Professor Marquis during the Fall '10 term at Taylor University.

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Group A.pptx for managerial 1-22 - only being $4 million, a...

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