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Wargrin designs, develops, and sells many PC games. Games have a short lifecycle lasting around three years only. The performance of the games is measured
Wargrin designs, develops, and sells many PC games. Games have a short lifecycle lasting around three years only. The performance of the games is measured by reference to the profits made in each of the expected three years of popularity. Wargrin accepts a net profit of 35% of turnover as reasonable. A rate of contribution (sales price less variable cost) of 75% is also considered acceptable. Wargrin has a large, centralised development department which carries out all the design work before it passes the completed game to the sales and distribution department to market and distribute the product. Wargrin has developed a brand-new game called Stealth and this has the following budgeted performance figures. The selling price of Stealth will be a constant 30 per game. Analysis of the costs show that at a volume of 10,000 units a total cost of 130,000 is expected. However, at a volume of 14,000 units a total cost of 150,000 is expected. If volumes exceed 15,000 units, the fixed costs will increase by 50%. Year 1 Year 2 Year 3 Sales volume 8,000 units 16,000 units 4,000 units In addition, marketing costs for Stealth will be 60,000 in year one and 40,000 in year two. Design and development costs are all incurred before the game is launched and cost 300,000 for Stealth. These costs are written off to the statement of profit or loss as incurred (i.e., before year 1 above). Required: Produce the budgeted results for the game Stealth and briefly assess the games expected performance, taking into account the whole lifecycle of the game
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