Assume That Microsoft and Sony Both Plan to Introduce a New

Essay

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?