Introducing a new product, profitability Santos Company is consi 1 answer below »

Introducing a new product, profitability Santos Company is considering introducing a new compact disc player model at a price of $105 per unit. Santos’s controller has compiled the following incremental cost information based on an estimate of 120,000 units of sales annually for the new product:
Direct materials cost…………………………… $3,600,000
Direct labor cost………………………………… $2,400,000
Variable manufacturing overhead……………… $1,200,000
Sales commission………………………………. 10% of sales
Fixed cost………………………………………. $2,000,000
The sales manager expects the introduction of the new model to result in a reduction in sales of the existing model from 300,000 to 240,000 units. The contribution margin for the existing model is $20 per unit.
Required
(a) Determine the total impact on Santos’s profit from the introduction of the new model.
(b) Should Santos introduce the new model? Explain.