For this activity, you have been hired as a team of consultants on a multi-year basis for a global washer and dryer manufacturer. They currently offer two core washer and dryer sets: a high-end model and an economic model.

After the combo washer-dryer has been in production for a few years, you are asked to perform another analysis. You must evaluate the performance of all three product lines as management is concerned with the viability of the washer-dryer combination product. They provide you with the latest annual information by product:

	High-End Set	Economical Set	W/D Combo	Total
Sales	$4,700,000	$4,060,000	$880,000	$9,640,000
Labor	$(1,250,000)	$(1,015,000)	$(235,000)	$(2,500,000)
Materials	$(1,885,000)	$(1,220,000)	$(315,000)	$(3,420,000)
Direct fixed costs	$(325,000)	$(220,000)	$(250,000)	$(795,000)
Allocated fixed costs	$(650,000)	$(650,000)	$(650,000)	$(1,950,000)
Net Income	$590,000	$955,000	$(570,000)	$975,000

• You are asked to perform an analysis to determine whether to drop or keep the washer-dryer combination product
• present your findings
• including the steps taken to make your determination.
• You are also asked to evaluate if the costing methodology is appropriate
• if not, recommend alternative methods.

Note:

• Please describe the circumstances of the case study and make the required recommendations.
• Explain your approaches to the problems.
• perform relevant calculations and analyses and justify your recommendations.
• Evaluate the results and explain what each calculated value means. Ensure your work and conclusions are thoroughly supported.

Superior presentations will:

• Describe the circumstances.
• Perform all calculations correctly.
• Articulate how the calculations were performed.
• Evaluate the computations and explain their meanings.
• Make recommendations, supported by well-thought-out rationale and considering various factors that could impact the recommendations.

Background of question:

management has provided the following revenue and cost information:

	High-End Set		Economical Set
Sales price	$3,500	per unit	$1,000	per unit
Labor	$875	per unit	$250	per unit
Materials	$1400	per unit	$300	per unit
Direct fixed costs	$25,000	per month	$16,500	per month
Allocated fixed costs	$85,000	per month	$85,000	per month

2. Later, the company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze the project on a 5-year timeline:

• Initial cash outlay is $150,000, no residual value.
• Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per unit in materials.
• Direct fixed costs are estimated to run $20,750 per month.
• Cost of capital is 8%, and the required rate of return is 10%.
• They will incur all operational costs in Year 1, though sales are expected to be 55% of break-even.
• Break-even (considering only direct fixed costs) is expected to occur in Year 2.
• Variable costs will increase 2% each year, starting in Year 3.
• Sales are estimated to grow by 10%, 15%, and 20% for years 3 - 5.