Epson Electronics Sdn Bhd produces earphones for electronic devices such as laptops and handphones. It is...
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Epson Electronics Sdn Bhd produces earphones for electronic devices such as laptops and handphones. It is an electrical device worn on the ear to receive radio or telephone communications or to listen to music on these devices. Due to the rapid rate of technological innovations in this market segment, most of the company's product have short-life cycles. The Marketing Manager believes new product introductions are the key to the company's success. However, the Managing Director is concerned that frequent changes in product line is eroding the company's profitability. He believes that many of the new products have such short life cycles that they do not fully recover the cost. He has asked the management accountant to review the profitability of one of its products, E101, which has been phased out after only 3 years in the market. The data for E101 on the sales and manufacturing cost for the past 3 years is as follows: Sales price per unit Unit Sales per year: Year 1 Year 2 Year 3 Unit Manufacturing cost: Direct Material Direct Labor Applied Manufacturing overhead RM 15.00 5,000 9,500 3,500 RM 3.00 RM 1.50 RM 2.25 In addition to these manufacturing costs, the management accountant was able to extract the following costs associated with E101: Research & Development cost Product Design Process Design Tooling cost Marketing Cost Warranty claims After-sales services Year 0 RM 19,000 12,000 17,000 22,000 11,000 Year 1 RM 10,000 12,000 10,000 3,000 Year 2 RM 8,000 6,000 4,000 5,500 Year 3 RM 8,000 1,000 2,000 Required: a) Assess the profitability of product E101 by computing the gross margin for Year 1, 2 & 3. Was product E101 profitable? (4.5 marks) b) Assess the profitability of E101 based on its entire life cycle cost. Was product E101 profitable? (9.5 marks) c) If the company's policy required a target profit margin on sales for all new products of at least 30% of sales, calculate the target cost of E101. (3 marks) d) What is the average unit cost of E101 over its entire life cycle? Based on this, do you think the management of Epson Electronics Sdn Bhd would have developed product E101? (4 marks) e) Would you recommend Epson Electronics Sdn Bhd to use life cycle costing (budgeting) Epson Electronics Sdn Bhd produces earphones for electronic devices such as laptops and handphones. It is an electrical device worn on the ear to receive radio or telephone communications or to listen to music on these devices. Due to the rapid rate of technological innovations in this market segment, most of the company's product have short-life cycles. The Marketing Manager believes new product introductions are the key to the company's success. However, the Managing Director is concerned that frequent changes in product line is eroding the company's profitability. He believes that many of the new products have such short life cycles that they do not fully recover the cost. He has asked the management accountant to review the profitability of one of its products, E101, which has been phased out after only 3 years in the market. The data for E101 on the sales and manufacturing cost for the past 3 years is as follows: Sales price per unit Unit Sales per year: Year 1 Year 2 Year 3 Unit Manufacturing cost: Direct Material Direct Labor Applied Manufacturing overhead RM 15.00 5,000 9,500 3,500 RM 3.00 RM 1.50 RM 2.25 In addition to these manufacturing costs, the management accountant was able to extract the following costs associated with E101: Research & Development cost Product Design Process Design Tooling cost Marketing Cost Warranty claims After-sales services Year 0 RM 19,000 12,000 17,000 22,000 11,000 Year 1 RM 10,000 12,000 10,000 3,000 Year 2 RM 8,000 6,000 4,000 5,500 Year 3 RM 8,000 1,000 2,000 Required: a) Assess the profitability of product E101 by computing the gross margin for Year 1, 2 & 3. Was product E101 profitable? (4.5 marks) b) Assess the profitability of E101 based on its entire life cycle cost. Was product E101 profitable? (9.5 marks) c) If the company's policy required a target profit margin on sales for all new products of at least 30% of sales, calculate the target cost of E101. (3 marks) d) What is the average unit cost of E101 over its entire life cycle? Based on this, do you think the management of Epson Electronics Sdn Bhd would have developed product E101? (4 marks) e) Would you recommend Epson Electronics Sdn Bhd to use life cycle costing (budgeting)
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Quantitative Analysis for Management
ISBN: 978-0132149112
11th Edition
Authors: Barry render, Ralph m. stair, Michael e. Hanna
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