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Product Margin, Demand, and Fixed Start up Costs for sales

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Assume you are starting a new company and need to decide your sales mix. Widget A has a large start up cost (fixed) and with a moderate margin. Widget A is the latest and greatest product, has a high demand, but will not be in demand for more than 1 year. Widget B has a low start up cost, with a low margin. Widget B has a low demand, but it is consistent. As a managerial accountant, what considerations might you have? Discuss the relationships between product margin, demand, and fixed start up costs.

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Solution Summary

This solution is 202 words and discusses how the two products differ and what the relationship between margin, demand and up-front costs are.

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As a managerial accountant, I am concerned that the profits from the product cover the start-up costs of getting the product ready for market!

Widget A: High demand for a short period means that there is little time to recoup the start up costs and the moderate margin mean ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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