Video Concepts, Inc. (VCI) manufactures a line of digital cameras that are distributed to large retailers....

Video Concepts, Inc. (VCI) manufactures a line of digital cameras that are distributed to large retailers. The line consists of three models. The following data are available regarding the models:

Model	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

VCI is considering the addition of the fourth model to its line (LX4). The 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. HOWEVER, with the new model, the original three models will see a reduction in demand. Demand for LX1 will drop 1%, demand for LX2 will drop 5% and demand for LX3 will drop 20%. VCI will incur a fixed cost of $20,000 to add the new model to the line. Calculate the following to help with your conclusion.

What is the total Gross Profit Margin for VCI without LX4? HINT: Calculate GPM for each model and add them together.
What is the Gross Profit Margin for models LX1-2-3 with the given reductions in sales from the introduction of LX4?
What is the Gross Profit Margin for LX4?
How does this compare to the current situation? Based on your answers for parts a, b and c, should VCI add the new Model LX4 to its line of digital cameras (HINT: Don’t forget to include the $20,000 fixed cost for the introduction of LX4)? Why or why not?

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ekkarill92 answered 2 years ago

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