ScanPlus' develops and supplies mobile health screening technology for use in the healthcare sector. Clients primarily are within the private sector, where mobile screening supports the value proposition by enabling better access between registered patients and healthcare professionals. As part of its process of developing new products, ScanPlus requires its mobile Scanners to meet particular target costs before they are approved for manufacture. Cost and revenue estimates are below: The table immediately below shows the estimates made by design engineers and market forecasting personnel at ScanPlus to enable a target cost analysis of the mobile scanners in the healthcare sector. It may be assumed these will have only a three year life-cycle. Data regarding costs have been arrived at based on small scale manufacture of a prototype, and on the performance of the mobile scanners. Data relating to demand and sales prices have been sourced from the firm's market forecasting system and based also on negotiations with potential customers. Estimates of Costs and Revenues Number of mobile scanning devices made and sold (units) Anticipated price per mobile scanning device (E p/unit) Design costs: R&D costs Engineering costs Manufacturing Cost: Variable (material purchase) cost per unit Variable (processing) cost/batch Units per batch Fixed (production capacity) costs Marketing & Distribution Costs: Fixed (marketing) costs Fixed warehousing Year 1 Page 3 of 90 400,000 Year 2 140 2,000,000 800,000 360,000 195,000 195,000 210,000 210,000 4 8 5,000,000 5,000,000 Year 3 165 1,600,000 1,600,000 1,600,000 1,200,000 1,200,000 1,200,000 320,000 195,000 210,000 12 5,000,000 2,000,000 2,000,000 800,000 800,000 Question 6 continued overleaf PTO The Chief Research Officer has made the assumption that, after three years, yet another scanner design will be needed to keep ahead in the healthcare sector. Question 6 continued sales over the three year period. This target has been arrived at through a combination The firm's expectation is for a target net operating income amounting to 16% of total this target is not set to be achieved, engineers and marketing personnel will be asked of historical rates of achievement by ScanPlus itself and competitor benchmarking. If to reconsider the design of mobile scanners and how they are manufactured REQUIRED: (a) Establish whether the mobile scanners (as currently designed) will meet the required target (net operating income amounting to 16% of total sales over the three year period) [15 marks] BMAN21040 AND ii. (b) If the target (net operating income amounting to 16% of total sales over the three year period) is not met, consider the implications of the following proposed courses of action: . Variable material purchase costs per unit are currently estimated at 195,000 (see Table above). Engineers have proposed joining in a global buying consortium that (through "economies of scale") might allow unit costs to be reduced by 10% for each of the three years of mobile scanner production. Currently, the engineering costs are estimated at 1.2m per year in each of the three years (see Table above). Some ScanPlus engineers have noted that, for little or no additional cost, the engineering work could be made relevant to both the scanners under examination, and a next- generation of product. They estimate that pursuing such "economies of scope" could reduce the design costs attributed to the current scanners by 15% per annum. iii. Warehousing costs were deemed excessive and the procurement officer has identified an outsource contractor who can offer a more flexible solution that grows or contracts with the business, saving 100,000 annually. You should compute the revised total allowable life-cycle costs, the total anticipated costs of the revised design and comment on whether, and by how much the revised design meets the target cost. [15 marks] Page 3 of 8 PTO