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the innovation products company wants to launch a new product to replace a current product that is technologically inferior. first-year sales for the replacement product are expected to be 50,000 units at a unit selling price of $12. the initial cost of the product is $9 per unit variable and $125,000 fixed. the expected sales growth is 1,000 units per year, and the expected inflation rate is in a range of 3% to 4% for both sales and variable costs.

Respuesta :

The new product is expected to be profitable by $25,000 in its first year. The profitability of the new product can be determined by subtracting the total costs from the total revenue. The total costs include the initial cost of the product ($9 per unit variable and $125,000 fixed) plus the expected inflation rate of 3% to 4% for both sales and variable costs.

The total revenue is the expected first-year sales of 50,000 units at a unit selling price of $12. Based on this information, the profitability of the new product can be calculated as follows:

Total Revenue = 50,000 units x $12 = $600,000

Total Costs = $9 x 50,000 = $450,000 + $125,000 = $575,000

Profitability = Total Revenue – Total Costs = $600,000 – $575,000 = $25,000

Therefore, the new product is expected to be profitable by $25,000 in its first year.

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