Question
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
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: ACC404_2021 Year 1 Year 2 Year 3 Units manufactured and sold 50,000 200,000 150,000 Price per watch $45 $40 $35 R&D and design costs 900,000 100,000 - Manufacturing Variable cost per watch $16 $15 $15 Variable cost per batch $700 $600 $600 Watches per batch 400 500 500 Fixed costs 600,000 600,000 600,000 Marketing Variable cost per watch $3.60 $3.20 $2,80 Fixed costs $400,000 $300,000 $300,000 Distribution Variable cost per watch $1 $1 $1 Variable cost per batch $120 $120 $100 Watches per batch 200 160 $120 Fixed costs $240,000 $240,000 $240,000 Customer service costs per watch $2 $1.50 $1.50 Required (a) Calculate the budgeted life cycle operating profit for the new watch. (b) What percentage of the budgeted product life cycle costs will be incurred at the end of the R&D and design stages? (c) 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?
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