Gamebug Inc. manufactures game systems. Gamebug has decided to create and market a new system with wireless controls and excellent video graphics. Gamebug's managers are thinking of calling this system the Yew. Based on past experience, they expect the total life cycle of the Yew to be four years, with the design phase taking about a year. They budget the following costs for the Yew: E: (Click the icon to view the budget.) Required ..... Requirement 1. Suppose the managers at Gamebug price the Yew game system at $105 per unit. How many units do they need to sell to break even? (Round your answer up to the nearest whole unit.) Gamebug will need units to break even. Requirement 2. The managers at Gamebug are thinking of two alternative pricing strategies. (a) Sell the Yew at $105 each from the outset. At this price, they expect to sell 1,560,000 units over its life cycle; (b) Boost the selling price of the Yew in year 2 when it first comes out to $180 per unit. At this price, they expect to sell 96,000 units in year 2. In years 3 and 4, drop the price to $105 per unit. The managers expect to sell 1,280,000 units in years 3 and 4. Which pricing strategy is recommended? Explain. In order to effectively answer this question, we must first determine the operating income under each option. First calculate the life cycle onerating income (loss) for antion (al (Enter onerating losses with parentheses or a minus sian Projected Life Cycle Statement of Comprehensive Income - X Budget Revenues Variable costs Total fixed costs Variable cost Fixed costs over four years per unit Life cycle operating income (loss) Year 1 R&D costs $ 6,620,000 Now calculate the life cycle operating income (loss) for option (b). (Enter operating losses with parentheses or a minus sign.) Design costs 1,410,000 Years 2-4 Production 19,520,000 Projected Life Cycle Statement of Comprehensive Income $44 per unit 5,250,000 Marketing and distribution Revenues $12 per unit Customer service 3,400,000 Variable costs Fixed costs Print Done Ext Gamebug Inc. manufactures game systems. Gamebug has decided to create and market a new system with wireless controls and excellent video graphics. Gamebug's managers are thinking of calling this system the Yew. Based on past experience, they expect the total life cycle of the Yew to be four years, with the design phase taking about a year. They budget the following costs for the Yew: (Click the icon to view the budget.) Required C. Fixed costs Life cycle operating income (loss) Which pricing strategy is recommended? Explain. Choose the correct answer below. O A. Option B because it results in an overall higher variable costs over the product's life cycle. OB. Option B because it results in an overall higher operating income over the product's life cycle. O c. Option A because it results in an overall higher variable costs over the product's life cycle. OD. Option A because it results in an overall higher operating income over the product's life cycle. - X Budget Requirement 3. What other factors should Gamebug consider in choosing its pricing strategy? Total fixed costs over four years Variable cost per unit Select all that apply. Year 1 R&D costs $ 6,620,000 Design costs 1,410,000 Years 2-4 Production 19,520,000 $44 per unit A. Pricing in global markets B. Employee reaction nc. Income tax considerations OD. Changes in customer preferences E. Competitor reaction Marketing and distribution 5,250,000 $12 per unit Customer service 3,400,000 Print Done ext
