Question 2 Fitweze is a manufacturer of electronic sport gadgets and is about to launch their new product line called the Watchfit. As this is a premium product, the Watchfit it is to be priced at $800, with a desired profit margin on sales of at least 30%. Given the hi-tech nature of this product, it is expected to be obsolete within three years from launch. Initial estimates of the Watchfit's manufacturing costs per until are as follows Direct materials Direct labour Fixed and variable manufacturing overhead $125 $250 $125 $500 Other costs estimated for the Watchfit over the coming years are provided in the table below Year 1 Year 2 Year 3 Year 4 Year 5 Research and Development $1,500,000 Product/Process design Marketirn Customer support Total $3,000,000 $700,000 1,000,000 $800,000$500,000 $400,000 $250,000 $800,000 $750,000 $200,000 $5,500,000 $1,750,000 $1,300,000 $1,150,000 $200,000 Fitweze has also forecasted the following Watchfit sales figures Year 2 Year 3 Year 4 10,000 (launch year) 15,000 5,000 Assume that all Watchfit's produced is sold in the same year (i.e. no inventories) Required: (12 marks) (a) Calculate the target cost for the Watchfit that will allow Fitweze to meet its target selling price of $800 and target profit margin of 30% on sales. (1 mark) (b) Calculate the difference between the target cost and (i) (ii) The estimated manufacturing cost per unit; (2 mark) and The estimated average cost per unit for the watch fit over its lifecycle. (4 marks) Hint: Total Cost = $24,900,000] (c) Which of your calculations in part (b) above provides a better cost estimate to compare against the target cost? Justify your answer. (3 marks) (d) Why would it be better to address any challenges with meeting the target cost in pre-production, rather than once production has commenced, when costs would be easier to predict? (2 marks) Question 2 Fitweze is a manufacturer of electronic sport gadgets and is about to launch their new product line called the Watchfit. As this is a premium product, the Watchfit it is to be priced at $800, with a desired profit margin on sales of at least 30%. Given the hi-tech nature of this product, it is expected to be obsolete within three years from launch. Initial estimates of the Watchfit's manufacturing costs per until are as follows Direct materials Direct labour Fixed and variable manufacturing overhead $125 $250 $125 $500 Other costs estimated for the Watchfit over the coming years are provided in the table below Year 1 Year 2 Year 3 Year 4 Year 5 Research and Development $1,500,000 Product/Process design Marketirn Customer support Total $3,000,000 $700,000 1,000,000 $800,000$500,000 $400,000 $250,000 $800,000 $750,000 $200,000 $5,500,000 $1,750,000 $1,300,000 $1,150,000 $200,000 Fitweze has also forecasted the following Watchfit sales figures Year 2 Year 3 Year 4 10,000 (launch year) 15,000 5,000 Assume that all Watchfit's produced is sold in the same year (i.e. no inventories) Required: (12 marks) (a) Calculate the target cost for the Watchfit that will allow Fitweze to meet its target selling price of $800 and target profit margin of 30% on sales. (1 mark) (b) Calculate the difference between the target cost and (i) (ii) The estimated manufacturing cost per unit; (2 mark) and The estimated average cost per unit for the watch fit over its lifecycle. (4 marks) Hint: Total Cost = $24,900,000] (c) Which of your calculations in part (b) above provides a better cost estimate to compare against the target cost? Justify your answer. (3 marks) (d) Why would it be better to address any challenges with meeting the target cost in pre-production, rather than once production has commenced, when costs would be easier to predict? (2 marks)
