Assume that Microsoft and Sony both plan to introduce a new hand-held video game. Microsoft plans to use a heavily automated production process to produce its product while Sony plans to use a labor-intensive production process. The following revenue and cost relationships are provided:
$\begin{array}{lrr}
&\text { Microsott Game }&\text { sony Game }\
\text {Selling price per unit }&150&150\
\text {Variable costs ner unit}\\
\text { Direct materials } & \$ 27.00 & 27.00 \
\text { Direct labor } & 7.50 & 30.00 \
\text { Overhead } & 7.50 & 30.00 \
\text { Selling and administrative } & 3.00 & 3.00\
\text { Annual fixed costs }\\
\text { Overhead } & \$ 600,000 & \$ 240,000 \
\text { Selling and adminstrative } & 135,000 & 135,000
\end{array}$
Required:Compute the contribution margin per unit for each company.Prepare a contribution income statement for each company assuming each company sells 8,000 units.Compute each firm's net income if the number of units sold increases by 10%.Which firm will have more stable profits when sales change? Why?

Question

Assume that Microsoft and Sony both plan to introduce a new hand-held video game. Microsoft plans to use a heavily automated production process to produce its product while Sony plans to use a labor-intensive production process. The following revenue and cost relationships are provided:
 $\begin{array}{lrr}
&\text { Microsott Game }&\text { sony Game }\ 
\text {Selling price per unit }&150&150\
 \text {Variable costs ner unit}\\
\text { Direct materials } & \$ 27.00 & 27.00 \
\text { Direct labor } & 7.50 & 30.00 \
\text { Overhead } & 7.50 & 30.00 \
\text { Selling and administrative } & 3.00 & 3.00\
\text { Annual fixed costs }\\
\text { Overhead } & \$ 600,000 & \$ 240,000 \
\text { Selling and adminstrative } & 135,000 & 135,000 
\end{array}$
 Required:Compute the contribution margin per unit for each company.Prepare a contribution income statement for each company assuming each company sells 8,000 units.Compute each firm's net income if the number of units sold increases by 10%.Which firm will have more stable profits when sales change? Why?

Quizplus · Accepted Answer

The Answer of Assume that Microsoft and Sony both plan to introduce a new hand-held video game. Microsoft plans to use a heavily automated production process to produce its product while Sony plans to use a labor-intensive production process. The following revenue and cost relationships are provided:
 $\begin{array}{lrr}
&\text { Microsott Game }&\text { sony Game }\ 
\text {Selling price per unit }&150&150\
 \text {Variable costs ner unit}\\
\text { Direct materials } & \$ 27.00 & 27.00 \
\text { Direct labor } & 7.50 & 30.00 \
\text { Overhead } & 7.50 & 30.00 \
\text { Selling and administrative } & 3.00 & 3.00\
\text { Annual fixed costs }\\
\text { Overhead } & \$ 600,000 & \$ 240,000 \
\text { Selling and adminstrative } & 135,000 & 135,000 
\end{array}$
 Required:Compute the contribution margin per unit for each company.Prepare a contribution income statement for each company assuming each company sells 8,000 units.Compute each firm's net income if the number of units sold increases by 10%.Which firm will have more stable profits when sales change? Why?

Assume That Microsoft and Sony Both Plan to Introduce a New