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:
Required:
(a) Compute the contribution margin per unit for each company.
(b) Prepare a contribution income statement for each company assuming each company sells 8,000 units.
(c) Compute each firm's net income if the number of units sold increases by 10%.
(d) 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:  
Required:
(a) Compute the contribution margin per unit for each company.
(b) Prepare a contribution income statement for each company assuming each company sells 8,000 units.
(c) Compute each firm's net income if the number of units sold increases by 10%.
(d) 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:  
Required:
(a) Compute the contribution margin per unit for each company.
(b) Prepare a contribution income statement for each company assuming each company sells 8,000 units.
(c) Compute each firm's net income if the number of units sold increases by 10%.
(d) Which firm will have more stable profits when sales change? Why?

Assume That Microsoft and Sony Both Plan to Introduce a New