Directions:

For this assignment you will need to evaluate the scenario $$Product Launch$($below$)$ and determine which of the two products, $$Redesign$$ or $$New$,$ the company should launch and at what price point. Like the last three integrative assignments you will enter your answers directly in Canvas under the assignment $$Integrative Assignment $4.$ Please complete the attempt by end of day Sunday of week $10.$

Scenario: $$Product Launch$$

You are the lead project manager for two product launches. Product Redesign is a redesign of your company$$s bestselling product. Product New is a completely new product in a new product category. The initial plan is to price product Redesign at $$400$ per unit and product New at $$600$ per unit. Based on these prices and a marketing budget $$8,000,000$ dollars over $5$ years plus compensating the company$$s direct sales staff with a $5\%$ sales commission on the purchase price of the product for each unit that they sell, the head of marketing believes that over the next $5$ years the company could sell anywhere from $300,000$ to $550,000$ of product Redesign and $150,000$ to $350,000$ of product New. He believes that there is a $50\%$ chance that demand will be at the low end and a $50\%$ chance that demand could also be at the high end, in essence an equal chance that actual demand will fall anywhere on this demand curve.

In order to understand the impact to the company$$s financial position, you discuss with the Vice President of Operations the operational cost structure of these two products. For product Redesign, she is projecting that the company will need to invest $$20,000,000$ for manufacturing equipment which will allow the company to make $450,000$ units of this product over $5$ years. For product New, she is projecting that the company will need to invest $$26,000,000$ for manufacturing equipment which will allow the company to make $350,000$ units of this product over $5$ years. As seen in Exhibit A$,$ Download Exhibit A$,$ The V$.$P$.$ of operations has also developed a thorough list of the raw material and labor cost needed to manufacture each product as well as the manufacturing overhead. As you study this information you notice an interesting detail, the company will struggle to meet the high end of the demand curve for both products with its current manufacturing capacity. You discuss this limitation with the VP of Operations. In your discussion, she feels that with an additional investment of $$10,000,000$ dollars for product Redesign, operations can increase capacity to $750,000$ units over $5$ years, and for an additional investment of $$5,000,000$ dollars for product New, operations can increase capacity to $475,000$ units over $5$ years. However, based on your initial breakeven analysis this additional investment will not pay for itself unless demand for both products significantly increases.

Based on this dilemma you strategize with the VP of Marketing on ways to increase demand. He proposes to lower the price of each product. The V$.$P$.$ of marketing believes that if the price of product $$Redesign$$ is lowered to $$370$ per unit, forecasted sales will be anywhere from $400,000$ to $800,000$ units. If the price for product $$New$$ is lowered to $$550$ per unit forecasted sales will be anywhere from $200,000$ to $425,000$ units. Again, he believes there is an equal chance that actual demand could be anywhere on this forecasted demand curve. What decisions do you make?

Your analysis will include evaluating the expected operating profit, operational risk, and economies of scale under each of the following four scenarios:

Price product Redesign at $$400$ per unit and keep capacity at $450,000$ units

Lower the price of product Redesign to $$370$ per unit and expand capacity to units $750,000$

Price product New at $$600$ per units and keep capacity at $350,000$ units

Lower the price of product New to $$550$ per units and expand capacity $475,000$ units

Specifically, you will answer the following questions in Canvas:

Part A: $$Analysis$$

Question $1$: From the four scenarios listed, which scenario adds the most expected total profits over a $5-$year period?

Question $2$: Which of the four scenarios exposes the company to the least amount of operational risk over a $5-$year period?

Question $3$: Explain conceptually which of the four scenarios you believe provides the company with the greatest economies of scale and then discuss the quantitative metric$($s$)$ you would use to measure this?

Question $4$: Lastly, discuss which product you would launch and at what price point $($i$.$e$.,$ which of the four scenarios do you recommend$)?$ Please provide a detailed explanation to support your answers.

Part B: $$Support$-$ Based on the scenario that you recommended in question $4$ what is the scenario$$s:

Question $5$: Total fixed cost?

Question $6$: Total variable cost per unit?

Question $7$: Contribution margin per unit?

Question $8$: Break$-$even point of units sold over $5$ years?