Question 1

Full cost basisUnit sales price $ 92.29 Costs $ 83.90 Profit per unit $ 8.39 No. of units to be sold annually 25000Total incremental profit $ 209,750.00

Question 2

Full cost basisUnit sales price $ 110.05

Costs $ 81.43 Proft per unit $ 28.62 No. of units expected to be cannibalised 3000Total expected loss $ 85,847.90

Question 4

Total additional materials (2 months) $ 165,833.33 Materials carrying costs $ 38,141.67 Additional work in process (1000, 50% completed) $ 61,850.00 Work in process costs $ 10,514.50 Additional finished goods (500) $ 41,950.00 Finished goods carrying costs $ 9,648.50 Finished Goods at Hi-Valu (2 months average) $ 349,583.33 Finished Goods at Hi-Valu carrying costs $ 47,193.75 Receivables from Hi-Valu (1 month average) $ 192,270.83 Receivables from Hi-Valu carrying costs $ 25,956.56 Total increase in assets $ 811,487.50 Total increase in assets carrying costs $ 131,454.98

Question 5

a) Overall impact on profitTotal incremental profit $ 209,750.00 Total expected cannibalisation loss $ 85,847.90 Total incremental carrying costs $ 131,454.98 Net incremental profit/loss $ (7,552.88)

b) Return on salesExisting RoS 2.35%New RoS 1.91%

c) Return on AssetsExisting RoA 3.15%New RoA 2.78%

d) Return on EquityExisting RoE 8.22%New RoE 7.98%

Unit sales price $ 92.29 Materials $ 39.80 Direct labor $ 19.60 Variable overhead $ 9.80 Contribution margin $ 23.09 No. of units to be sold annually 25000Total incremental contribution margin $ 577,250.00

Unit sales price $ 110.05

$ 67.73 Contribution margin $ 42.32 No. of units expected to be cannibalised 3000Total loss of contribution margin $ 126,968.02

Contribution margin basis (Assuming only variable costs are differential)

Contribution margin basis (Assuming only variable costs are differential)

Variable costs (assuming same ratio as Challenger prodution)