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Question 4 ChitChat Ltd develops and sells mobile phones. Based on the company's experience, the mobile phones have a life cycle of around four years.
Question 4 ChitChat Ltd develops and sells mobile phones. Based on the company's experience, the mobile phones have a life cycle of around four years. ChitChat Lid has developed a brand new mobile phone "M46", the budgeted information of which is as following: Year 0 Year 1 Year 2 Year 3 Year 4 Sale and production (units) 5,000 11,000 8,000 3,000 Selling price (E/unit) 60 80 80 50 Marketing cost (E) 75,000 90,000 50,000 30,000 Administration cost (E) 25.000 25,000 25,000 25,000 R&D cost (E) 400,000 *R&D cost is written off to the income statement as incurred. For production costs, the analysis of the costs shows that: Production variable cost (C/unit) E20 Production fixed cost (E) $150,000 (if production is up to 10,000 units per year). However, if production volumes exceed 10,000 units, the annual production fixed costs will increase by 50%. (Round up to two decimals in your calculation if required) Required: a) Prepare the budgeted results for the "M46" product at a whole life cycle. You are required to show all workings.b] Calculate the must per unit for the \"M45" product at a whale lie cycle You are required In Show EH writings c) According to ChitChat Lid's policy, the company will consider launching a new product if: - The rate of contribution is at least 70%; and - The net profit margin is at least 30% Bearing in mind this policy, and using the information calculated in a) and b) above, assess whether ChitChat Lid should launch the "M46" product. Provide a detailed explanation of your decision. You are required to show all workings.d) Discuss how "life cycle costing" differs from "traditional costing" and discuss the reasons ChitChat should consider "life cycle costing"
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