Tech Ideas is going to introduce a combination phone/tablet product. Design and testing will take 8...

  

Transcribed Image Text:

Tech Ideas is going to introduce a combination phone/tablet product. Design and testing will take 8 months. Tech Ideas expects to sell 30,000 units during the first 6 months of sales. Sales over the next 12 months are expected to be less robust at 26,000. And, sales in the final 6 months of the expected life cycle are expected to be 11,000. Tech Ideas is budgeting for this product as follows: Requirement 1. If Tech Ideas prices the phone/tablets at $350 each, how much operating income will the company make over the product's life cycle? What is the operating income per unit? Begin by preparing the life cycle income statement in order to determine how much operating income the company will make over the product's life cycle. Projected Life Cycle Income Statement Revenues Variable costs: Total variable costs Fixed costs: Total fixed costs Life cycle operating income ▾ 950000 Data table Months Months 0-8 Months 9-14 Months 15-26 Months 27-32 Type of Cost Design costs Production Marketing Distribution Production Marketing Distribution Production Marketing Distribution Ignore the time value of money. Print Total Fixed Cost for the Period $ $ EA $ $ 950,000 1,005,000 780,000 426,000 770,000 1,400,000 350,000 380,000 490,000 161,000 Done Variable cost per Unit $56 per unit $9 per unit $41 per unit $7 per unit $44 per unit $5 per unit - X Requirements 1. If Tech Ideas prices the phone/tablets at $350 each, how much operating income will the company make over the product's life cycle? What is the operating income per unit? 2. Excluding the initial product design costs, what is the operating income in each of the three sales phases of the product's life cycle, assuming the price stays at $350? 3. How would you explain the change in budgeted operating income over the product's life cycle? What other factors does the company need to consider before developing the new combination phone/tablet product? 4. Tech Ideas is concerned about the number of units it expects to sell in the first sales phase. The company is considering pricing the phone/tablet at $290 for the first 6 months and then increasing the price to $350 thereafter. With this pricing strategy, Tech Ideas expects to sell 33,000 units instead of the originally forecast 30,000 units in the first sales phase, and the same number of units for the remaining life cycle. Assuming the same cost structure as given in the problem, which pricing strategy would you recommend? Explain. Print - Done X Tech Ideas is going to introduce a combination phone/tablet product. Design and testing will take 8 months. Tech Ideas expects to sell 30,000 units during the first 6 months of sales. Sales over the next 12 months are expected to be less robust at 26,000. And, sales in the final 6 months of the expected life cycle are expected to be 11,000. Tech Ideas is budgeting for this product as follows: Requirement 1. If Tech Ideas prices the phone/tablets at $350 each, how much operating income will the company make over the product's life cycle? What is the operating income per unit? Begin by preparing the life cycle income statement in order to determine how much operating income the company will make over the product's life cycle. Projected Life Cycle Income Statement Revenues Variable costs: Total variable costs Fixed costs: Total fixed costs Life cycle operating income ▾ 950000 Data table Months Months 0-8 Months 9-14 Months 15-26 Months 27-32 Type of Cost Design costs Production Marketing Distribution Production Marketing Distribution Production Marketing Distribution Ignore the time value of money. Print Total Fixed Cost for the Period $ $ EA $ $ 950,000 1,005,000 780,000 426,000 770,000 1,400,000 350,000 380,000 490,000 161,000 Done Variable cost per Unit $56 per unit $9 per unit $41 per unit $7 per unit $44 per unit $5 per unit - X Requirements 1. If Tech Ideas prices the phone/tablets at $350 each, how much operating income will the company make over the product's life cycle? What is the operating income per unit? 2. Excluding the initial product design costs, what is the operating income in each of the three sales phases of the product's life cycle, assuming the price stays at $350? 3. How would you explain the change in budgeted operating income over the product's life cycle? What other factors does the company need to consider before developing the new combination phone/tablet product? 4. Tech Ideas is concerned about the number of units it expects to sell in the first sales phase. The company is considering pricing the phone/tablet at $290 for the first 6 months and then increasing the price to $350 thereafter. With this pricing strategy, Tech Ideas expects to sell 33,000 units instead of the originally forecast 30,000 units in the first sales phase, and the same number of units for the remaining life cycle. Assuming the same cost structure as given in the problem, which pricing strategy would you recommend? Explain. Print - Done X

Answer rating: 100% (QA)

To calculate the operating income over the products life cycle and the operating income per unit we need to consider the revenues and costs for each phase of the products life cycle Given that the pro... View the full answer