1. Video Concepts, Inc. (VCI) manufactures a line of DVD recorders (DVDs) that are distributed to large retailers. The line consists of three models of DVDs. The following data are available regarding the models:
Model DVD Selling Price per Unit Variable Cost per Unit Demand/Year (units)
Model LX1 $175 $100 2,000
Model LX2 250 125 1,000
Model LX3 300 140 500
LX4 375 225 300
VCI is considering the addition of a fourth model to its line of DVDs. This model would be sold to retailers for $375. The variable cost of this unit is $225. The demand for the new Model LX4 is estimated to be 300 units per year. Sixty percent of these unit sales of the new model is expected to come from other models already being manufactured by VCI (10 percent from Model LX1, 30 percent from Model LX2, and 60 percent from Model LX3). VCI will incur a fixed cost of $20,000 to add the new model to the line. Based on the preceding data, should VCI add the new Model LX4 to its line of VCRs? Why?
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