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 comma 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 comma 000 to 240 comma 000 units. The contribution margin for the existing model is $ 20 per unit. Requirements (a) Determine the total impact on Santos 's profit from the introduction of the new model. (b) Should Santos introduce the new model? Explain.
