QUE STI'DN 2|] MARKS The Smiths Falls Time Company [SFTC] assembles sports watches. The watches consist of three main components: the quartz mechanism, the case, and the strap. SFTC sources the components from suppliers and assembles the watches in its factory. Extensive customer surveys have established that there are three functions for the watches in the niche that SFTC has chosen: time, water resistance, and style. Time is provided by the quartz mechanism; water resistance and style are provided by the case and strap. Replaceable batteries power all the watches. However, once the case is opened to replace the battery, the waterproof nature of the watch is usually lost. Market surveys have established three price points for three new watches that SFTC now has in the design stage: [1:] $30 for a basic watch, [2] $50 for a basic chronograph, and (3) $120 for a multifunction watch. SFTC has determined, given its facilitysustaining costs and its cost of capital, that the three watches must provide a margin of $4, $3, and $15 to be acceptable. Based on initial specifications, the supplier of the quartz mechanisms has quoted prices of $8, $15, and $41] for the three watches. Because these mechanisms use standard components and wellunderstood technology, planners at SFTC consider these costs to be about as low as they can be with very little variation due either to functionality or to cost efficiencies among suppliers. The implication is that any needed target cost reductions will not be wrung out of the quartz mechanism component of the watch. There are many sources for the watchstraps, and prices vary widely based on functionality, which includes appearance, composition, and wearability. Suppliers quoted price ranges for the three watches as follows: $2$?, $6$9, and $20$31]. For any given level of frmctionality chosen, there is very little price variation among suppliers because the watchstraps are virtually commodity products and are produced very cost effectively. The case provides two critical functions style and water resistance. nd, given the commodity nature of the quartz mechanism, it is the distinguishing feature of the watch. All cases have to be guaranteed to a depth of 59 meters minimum, and customer focus groups indicate that customers find a guaranteed depth of ltlfl meters desirable. Depending on style and degree of water resistance, suppliers quoted the following price ranges for the watchcases: $5$l5, $10$25, and $20-$35. Both style and water resistance in creased in the product price. Conversations with factory personnel indicated that the estimated costs of assembling, packaging, and shipping each watch were about $5, $?, and $15. Discussions with the primary supplier of the watchcases have yielded the following facts. For an investment estimated at about $5,DUD,GDD, SFTC could provide management advice to one of its case suppliers. This advice would be related to developing better manufacturing methods. These improved methods would likely reduce the cost of each case supplied by about 25%. Required: [1] Compute the cost ranges for the three watches. (Smarksj [2] Identify how you would choose the specific strap and case for each watch. [3 marks] [3] What role does management accounting have in the decisions you made in Part 2
