(a) SRM Ltd. has developed a new product 'Kent' which is about to be launched into...

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(a) SRM Ltd. has developed a new product 'Kent' which is about to be launched into the market and anticipates to sell 80,000 of these units at a sale price of 300 over the product's life cycle of four years. Data pertaining to product 'Kent' are as follows: Costs of Design and Development *10,25,000 of Moulding Dies and Other tools Manufacturing costs Selling costs Administration costs Warranty expenses *125 per unit * 12,500 per year + 100 per unit *50,000 per year 5 replacement parts per 25 units at * 10 per part, 1 visit per 500 units (cost 500 per visit) Required: (i) Compute the product Kent's Life Cycle Cost. (ii) Suppose SRM Ltd. can increase sales volume by 25% through 15% decrease in selling price, should SRM Ltd. choose the lower price? 8 (b) BCG Manufacturers sell their product at 1,000 per unit. Their competitors are likely to reduce the price by 15%. BCG Manufacturers want to respond aggressively by cutting price by 20% and expect that the present volume of 150000 units per annum will increase to 200000 units. BCGM want to earn a 10% target profit on sales. Based on a detailed value engineering, the comparative position is given below: Particulars Existing (3) Target () Direct Material Cost per unit Direct Labour Cost per unit Direct machinery costs per unit Direct Manufacturing expenses per unit Manufacturing Overheads No. of orders ( 80 per order) Testing hours (2 per hour) Units reworked (* 100 per unit) 400 55 70 525 22,500 45,00,000 12,000 385 50 60 425 21,250 30,00,000 13,000 Manufacturing overheads are allocated using relevant cost drivers. Other operating costs per unit for the expected volume are estimated as follows: Research and Design Marketing and Customer Service *50 130 180 Required: (i) Calculate target costs per unit and target costs for the proposed volume showing break up of different elements. (ii) Prepare target product profitability statement. 4+4=8 (a) SRM Ltd. has developed a new product 'Kent' which is about to be launched into the market and anticipates to sell 80,000 of these units at a sale price of 300 over the product's life cycle of four years. Data pertaining to product 'Kent' are as follows: Costs of Design and Development *10,25,000 of Moulding Dies and Other tools Manufacturing costs Selling costs Administration costs Warranty expenses *125 per unit * 12,500 per year + 100 per unit *50,000 per year 5 replacement parts per 25 units at * 10 per part, 1 visit per 500 units (cost 500 per visit) Required: (i) Compute the product Kent's Life Cycle Cost. (ii) Suppose SRM Ltd. can increase sales volume by 25% through 15% decrease in selling price, should SRM Ltd. choose the lower price? 8 (b) BCG Manufacturers sell their product at 1,000 per unit. Their competitors are likely to reduce the price by 15%. BCG Manufacturers want to respond aggressively by cutting price by 20% and expect that the present volume of 150000 units per annum will increase to 200000 units. BCGM want to earn a 10% target profit on sales. Based on a detailed value engineering, the comparative position is given below: Particulars Existing (3) Target () Direct Material Cost per unit Direct Labour Cost per unit Direct machinery costs per unit Direct Manufacturing expenses per unit Manufacturing Overheads No. of orders ( 80 per order) Testing hours (2 per hour) Units reworked (* 100 per unit) 400 55 70 525 22,500 45,00,000 12,000 385 50 60 425 21,250 30,00,000 13,000 Manufacturing overheads are allocated using relevant cost drivers. Other operating costs per unit for the expected volume are estimated as follows: Research and Design Marketing and Customer Service *50 130 180 Required: (i) Calculate target costs per unit and target costs for the proposed volume showing break up of different elements. (ii) Prepare target product profitability statement. 4+4=8

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