Question

In: Finance

Magic Tyme is considering using existing machinery to produce a new magic kit. Which of the...

Magic Tyme is considering using existing machinery to produce a new magic kit. Which of the following items should be included in the analysis of the new product?

I. Developing the product cost $50,000

II. Magic Tyme already sells a similar, but not identical, product

III. The new product will be sold on credit

IV. The fixed cost of the machinery is $20,000 per year

A. II and III only

B. II and IV only

C. I, II, and III only

D. II, III, and IV only

E. I, II, III, and IV

Solutions

Expert Solution

Research and development cost is not considered in project evaluation as it is considered a sunk cost.

Magic Tyme already sells a similar, but not identical, the product is considered as it will effects it's sales and hence profitability of the entire company.

The new product will be sold on credit is considered as it will increase the working capital needed to be invested.

The fixed cost of the machinery is $20,000 per year is considered as it is a direct cost associated with the product.

Answer: D. II, III, and IV only

jeff jeffy answered 2 years ago
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