Tharp Company operated a small factory in which it manufactures two products: C and D...
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Tharp Company operated a small factory in which it manufactures two products: C and D Production and sale results for last year were as follows. C D Unit Sold 9000 20,000 Selling Price $95 $75 VC per unit $0 $40 FC per unit 24 24
For purpose and 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 an new product E as a replacement for product D. Market studies show that Tharp Company could sell 10,000 unit of E next year at price of $115. The variable cost per unit of E is $45. The introduction of product E will lead to a 10% increase of demand of product C and a discontinuation of product D. If the company does not introduce the new product, it expects next year's result to be the same as last year's. Should Tharp Company should introduce Product E next year? Explain why or why not. Show your calculations clearly.
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