Life-cycle product costing, activity-based costing. (35-40 minutes)

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: njy56

REQUIRED ve 2s Calculate the budgeted life-cycle operating profit for the new watch.
What percentage of the budgeted product life-cycle costs will be incurred at the end of the R&D and design stages?
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?
Les Saturniens’ Market Research Department estimates that reducing MX3’s price by BFr 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 BFr 3?

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YEAR 1 YEAR 2 YEAR 3 Units manufactured and sold 50,000 200,000 Price per watch BFr 45 BFT 40 150,000 BFr 35 R&D and design costs BFr 900,000 BFr 100,000 Manufacturing Variable cost per watch Variable cost per batch Watches per batch Fixed costs BFr 700 BFr 16 BFr 15 BFr 600 BFr 15 BFr 600 400 500 500 BFr 600,000 BFr 600,000 BFr 600,000 continued on next page