W has recently completed the development and testing of a new product which has cost S400,000....
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W has recently completed the development and testing of a new product which has cost S400,000. It has also bought a machine to produce the new product costing S150,000. The production machine is capable of producing 1,000 units of the product per month and is not expected to have residual value due to its specialized nature. The company has decided that the unit selling prices it will charge will change with the cumulative numbers of units sold as follows. Cumulative sales units Selling price Sper unit in this hand O to 2.000 2,001 to 7,000 7,001 to 14,500 100 70 14,501 54,500 54,501 and abve 40 Based on these selling prices, it is expected that sales demand will be as shown below. Months Sales domand per moeth (units) 200 500 150 1-10 11- 20 21-30 31-70 71-0 1,000 00 KI - 90 91 - 100 600 400 101 - 110 200 Thereafler Nil Unit variable costs are expected to be as follows. S per unit First 2,000 units Nest 12,500 units 40 Next 20,000 units 30 Next 20,000 units 25 Therealter 30 W operates a Just-in-time (JIT) purchasing and production system and operates its business on a cash basis. A columnar cash flow statement showing the cumulative cash flow of the product after its introduction and growth stages has already been completed and this is set out below, Introduct Geowth 1-1D -2021 - 30 Months Namber of units produced and seld 2000 Selling price per unit Unit variable cost 5,000 1500 Se ST0 Unit contribution sa0 S30 Total contribution S100.000 $425,00 (S4S0.000 S2500) Cumulative Required: (a) Complete the cash flow statement for each of the remaining two stages of the product's life cycle. Do not copy the introduction and growth stages in your answer. Ignore the time value of money. (5 marks) (b) Explain, using your answer to (a) above and the data provided, the possible reasons for the changes in costs and selling prices during the life cycle of the product. (5 marks) (Total 10 marks) W has recently completed the development and testing of a new product which has cost S400,000. It has also bought a machine to produce the new product costing S150,000. The production machine is capable of producing 1,000 units of the product per month and is not expected to have residual value due to its specialized nature. The company has decided that the unit selling prices it will charge will change with the cumulative numbers of units sold as follows. Cumulative sales units Selling price Sper unit in this hand O to 2.000 2,001 to 7,000 7,001 to 14,500 100 70 14,501 54,500 54,501 and abve 40 Based on these selling prices, it is expected that sales demand will be as shown below. Months Sales domand per moeth (units) 200 500 150 1-10 11- 20 21-30 31-70 71-0 1,000 00 KI - 90 91 - 100 600 400 101 - 110 200 Thereafler Nil Unit variable costs are expected to be as follows. S per unit First 2,000 units Nest 12,500 units 40 Next 20,000 units 30 Next 20,000 units 25 Therealter 30 W operates a Just-in-time (JIT) purchasing and production system and operates its business on a cash basis. A columnar cash flow statement showing the cumulative cash flow of the product after its introduction and growth stages has already been completed and this is set out below, Introduct Geowth 1-1D -2021 - 30 Months Namber of units produced and seld 2000 Selling price per unit Unit variable cost 5,000 1500 Se ST0 Unit contribution sa0 S30 Total contribution S100.000 $425,00 (S4S0.000 S2500) Cumulative Required: (a) Complete the cash flow statement for each of the remaining two stages of the product's life cycle. Do not copy the introduction and growth stages in your answer. Ignore the time value of money. (5 marks) (b) Explain, using your answer to (a) above and the data provided, the possible reasons for the changes in costs and selling prices during the life cycle of the product. (5 marks) (Total 10 marks)
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Related Book For
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
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