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Layton Company operates a small factory in which it manufactures two prod- ucts: C and...

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Layton Company operates a small factory in which it manufactures two prod- ucts: C and D. Production and sales results for last year were as follows: Units sold Selling price per unit Variable costs per unit Fixed costs per unit 4,000 10,000 $80 50 $100 48 For purposes of simplicity, the firm averages total fixed costs over the total number of units of C and D produced and sold. The research department has developed a new product (E) as a replacement for product D. Market studies show that Layton Company could sell 5,500 units of E next year at a price of $150; the variable costs per unit of E are $64. The introduction of prod- uct E will lead to a 10% increase in demand for product C and discontinuation of prod- uct D. If the company does not introduce the new product, it expects next year's results to be the same as last year's. Instructions Should Layton Company introduce product E next year? Explain why or why not. Show calculations to support your decision. (CMA-Canada adapted)

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