Les Saturniens SA makes digital watches. Les Saturniens is preparing a product life-cycle budget for a new watch, MX3. Development on the new watch with features such as a calculator and a daily diary is to start shortly. Les Saturniens expects the watch to have a product life cycle of 3 years. Estimates about MX3 are as follows:

Ignore the time value of money in your answers.
Required
1. Calculate the budgeted life-cycle operating profit for the new watch.
2. What percentage of the budgeted product life-cycle costs will be incurred at the end of the R&D and design stages?
3. An analysis reveals that 80% of the total product life-cycle costs of the new watch will be locked in at the end of the R&D and design stages. What implications would this finding have on managing MX3's costs?
4. Les Saturniens' Market Research Department estimates that reducing MX3's price by €3 each year will increase sales by 10% each year. If sales increase by 10%, Les Saturniens plans to increase manufacturing and distribution batch sizes by 10% as well. Assume that all variable costs per watch, variable costs per batch and fixed costs will remain the same. Should Les Saturniens reduce MX3's price by €3?

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Year 1 Year 2 Year 3 Units manufactured and sold Price per watch R&D and design costs Manufacturing 200000 40 100000 50000 45 900000 150 000 E35 Variable cost per watch Variable cost per batch Watches per batch Fixed costs 16 700 400 600000 15 600 500 E600000 15 E600 500 600000 Marketing Variable cost per watch Fixed costs 3.60 400000 3.20 300000 2.80 300000 Distribution Variable cost per watch Variable cost per batch Watches per batch Fixed costs 1 120 200 240000 2 1 120 160 240000 1.50 1 100 120 240000 1.50 Customer service costs per watch