Assume That Microsoft and Sony Both Plan to Introduce a New

question 94

Essay

Assume that Microsoft and Sony both plan to introduce a new hand-held video game.Microsoft plans to use a heavily automated production process to produce its product while Sony plans to use a labor-intensive production process.The following revenue and cost relationships are provided: $\begin{array}{c}\begin{array}{|l|}\hline\\\hline \text {Selling price per unit}\\\hline \text {Variable costs per unit}\\\hline \text {Direct materials}\\\hline \text {Direct labor}\\\hline \text {Overhead}\\\hline \text {Selling and administrative}\\\hline \text {Annual fixed costs}\\\hline \text {Overhead}\\\hline \text {Selling and administrative}\\\hline\end{array}\begin{array}{l|}\hline \text {Micros oft Game}\\\hline150\\\hline\\\hline\$ 27.00 \\ \hline 7.50 \\ \hline 7.50 \\ \hline 3.00 \\ \hline\\\hline\$ 600,000 \\ \hline 135,000 \\ \hline \end{array}\begin{array}{l|}\hline \text {Sony Game}\\\hline150\\\hline\\\hline\$ 27.00 \\ \hline 30.00 \\ \hline 30.00 \\ \hline 3.00 \\ \hline\\\hline\$ 240,000 \\ \hline 135,000 \\ \hline\end{array}\end{array}$
Required:
(a)Compute the contribution margin per unit for each company.
(b)Prepare a contribution income statement for each company assuming each company sells 8,000 units.
(c)Compute each firm's net income if the number of units sold increases by 10%.
(d)Which firm will have more stable profits when sales change? Why?

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