Johnson and Gomez, Inc.: Deciding Between Two Models
1. What should be considered in deciding which model to introduce?
a. Unit contribution margin
b. Market study
c. Development costs
d. Sales salaries
2. Which model offers a higher unit contribution margin?
a. Basic model
b. Enhanced model
3. What factors should Johnson and Gomez, Inc. consider before making a final decision on the model to introduce?
a. Growth potential of the models
b. Competitor products in the marketplace
c. Effects on existing product sales
d. Break-even points
Answer:
1. The unit contribution margin for each product is:
a. Basic model: $194.50
b. Enhanced model: $256.00
2. Which of the following should be ignored in making the product-introduction decision?
a. Development costs
b. Market study
3. What other factors should Johnson and Gomez, Inc. consider before a final decision is made?
a. Growth potential of the Basic and Enhanced models
b. Competitive products in the marketplace
c. Break-even points
d. Effects, if any, on existing product sales
In deciding which model to introduce, Johnson and Gomez, Inc. should consider various factors. The unit contribution margin for the Basic model is $194.50 and for the Enhanced model is $256.00. The company should also ignore development costs and the cost of the market study, as they are sunk costs that cannot be recovered.
Furthermore, Johnson and Gomez, Inc. should consider the growth potential of both models, competitor products in the marketplace, and the effects on existing product sales. Break-even points are also crucial in determining the financial viability of introducing either the Basic or Enhanced model. Taking these factors into account will help the company make an informed decision that aligns with its goals and market conditions.