1:37 706 MANAGERIAL ACCOUNTING Q AA P15.28 Life cycle budgeting knowledge consolidation, budgeted financial statements and NPV analysis, and life cycle management, continuous improvement (value engineering) or redesign (re-engineering) 101 AusRing Ltd has developed a new fitness tracker bluetooth smartwatch for Android or iOS to be called the IntouchNHealthy LINH To compete effectively with models offered by other companies, the INH would need to be priced at $385, A 30 per cent profit margin is needed each year the product is offered to the market due to the product's short life cycle. For the long-term view of the project, a 9% cost of capital Irequired rate of return is required to be considered in an NPV analysis for the proposed development of the new product. The technology in built-in phone wristwatches is developing rapidly, and therefore the INH is expected to be obsolete within three years of entering the market. Initial estimates of the INH's cost of manufacture per unit are as follows. Direct material Direct labour Manufacturing overhead $104 55 33 $192 The marketing department is keen to introduce the INH as soon as possible. However, the management accountant is concerned about the non-manufacturing costs likely to be associated with the new product. He asks the departments that are upstream and downstream of manufacturing to estimate the costs in their departments associated with the development, production and sale of the INH. He receives the following information: Estimated Costs Associated with the Proposed INH ($'0000 Department 2018 2019 2020 2021 2022 1000 Research and development Product and process 500 540 design Marketing Customer support Total 500 450 500 400 350 550 950 350 2.000 1.250 1050 1.250 250 The required rate of return is % and forecast sales of the INH are as follows: Required: 1 2 2020 25 000 units 15 000 units Prepare a life cycle budget for the INHthat covers each year from 2018 to 2022 based on the selling price of $385 over the product's life cycle to estimate the potential net profit margin and NPV Based on your calculations in requirement 1, would you recommend the development and introduction of the INH model? If not, provide calculations showing why not and explain what should occur before you can recommend (NH's development 3 Further market research and a pessimistic what-if sensitivity analysis suggest that as NH enters the mature stage of its life cycle, the selling price will reduce as follows . $385 for 2019 65% of this initial selling price for 2020 35% of this initial selling price for 2021 b Perform a life cycle budget for the INH based on the new projected selling price information Would you recommend the development and introduction of the model? Provide calculations for the potential net profit margin and NPV of a new life cycle budget to support your answer for bl 4 Using your answers from requirement 3, calculate the annual estimated cost reduction lin dollars and as a percentage of costs needed to reach an annual target cost that enables the company's desired 30% profit margin to be achieved annually in 2019 to 2021 To calculate these yearly costs, find the average of the pre-product 2018 and post-selling 2022 costs and add the average costs for the three years 2019, 2020 and 2021. You will need to use this to estimate the annual estimated cost reduction 5 Explain, briefly, how your company may use either the value engineering or re-engineering strategies techniques, or both, to reduce manufacturing and non-manufacturing costs associated with sales to achieve this new target cast