The marketing department of Bream Hot Water Ltd has recommended that the company introduce a new...

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The marketing department of Bream Hot Water Ltd has recommended that the company introduce a new solar hot water system, to be called the Sunstruck. To compete effectively with existing models offored by other companies, the Sunstruck would need to be priced at $1 600. The company requiros a target profit margin for all new products of at least 30 per cont of sales. The technology in solar energy is developing rapidly, and therefore the Sunstruck is expected to be obsolete within three years of ontoring the market. Initial ostimates of the Sunstruck's cost of manufacture per unit are: Direct material $ 500 Direct labour 250 Manufacturing overhead 250 S1 000 * Menufocturing overheed is applied at 100 per cent of direct labour cost. The marketing department is keen to Introduce the Sunstruck as soon as possible. However, the management accountant is concerned about the non-manufacturing costs likely to be associated with the new product. He asks the departments that are upstream and downstream of manufacturing to estimate the costs in their departments associated with the development, production and sale of the Sunstruck. He receives the following Information: Estimated costs associated with the proposed Sunstruck (in $'000s) Department Year 1 Year 2 Year 3 Year 4 Year 5 Research and development 3 000 Product and process design 6 000 1 400 Marketing 2 000 1 600 1 000 800 Customer support 500 1 600 1 500 400 The forecast sales of the Sunstruck are as follows: Year 2 10 000 units Year 3 15 000 units Year 4 5 000 units Required: 1. Calculate the target cost for the Sunstruck that will meet the target selling price of $1 600 and the target profnt margin of 30 per cent on sales, Compare this with the ostimated manufacturing cost. On this basis, would you recommend the development and Introduction of the Sunstruck model? 2. Prepare a life cycle budget for the Sunstruck that covers ench year from year 1 to year 5. 3. What is the ostimated average unit cost of the Sunstruck over its entire life cycle? On this basis, would you recommend the development and Introduction of the Sunstruck model? 4. Explain how Bream could use life cycle management to reduce the manufacturing cost of the Sunstruck solar hot water system. Which part of the value chain may warrant additional expenditure? Explain. The marketing department of Bream Hot Water Ltd has recommended that the company introduce a new solar hot water system, to be called the Sunstruck. To compete effectively with existing models offored by other companies, the Sunstruck would need to be priced at $1 600. The company requiros a target profit margin for all new products of at least 30 per cont of sales. The technology in solar energy is developing rapidly, and therefore the Sunstruck is expected to be obsolete within three years of ontoring the market. Initial ostimates of the Sunstruck's cost of manufacture per unit are: Direct material $ 500 Direct labour 250 Manufacturing overhead 250 S1 000 * Menufocturing overheed is applied at 100 per cent of direct labour cost. The marketing department is keen to Introduce the Sunstruck as soon as possible. However, the management accountant is concerned about the non-manufacturing costs likely to be associated with the new product. He asks the departments that are upstream and downstream of manufacturing to estimate the costs in their departments associated with the development, production and sale of the Sunstruck. He receives the following Information: Estimated costs associated with the proposed Sunstruck (in $'000s) Department Year 1 Year 2 Year 3 Year 4 Year 5 Research and development 3 000 Product and process design 6 000 1 400 Marketing 2 000 1 600 1 000 800 Customer support 500 1 600 1 500 400 The forecast sales of the Sunstruck are as follows: Year 2 10 000 units Year 3 15 000 units Year 4 5 000 units Required: 1. Calculate the target cost for the Sunstruck that will meet the target selling price of $1 600 and the target profnt margin of 30 per cent on sales, Compare this with the ostimated manufacturing cost. On this basis, would you recommend the development and Introduction of the Sunstruck model? 2. Prepare a life cycle budget for the Sunstruck that covers ench year from year 1 to year 5. 3. What is the ostimated average unit cost of the Sunstruck over its entire life cycle? On this basis, would you recommend the development and Introduction of the Sunstruck model? 4. Explain how Bream could use life cycle management to reduce the manufacturing cost of the Sunstruck solar hot water system. Which part of the value chain may warrant additional expenditure? Explain.

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1 Target Cost for Sunstruck Particulars a Target Selling Price 1600 b Target Profit Margin 30 cab Ta... View the full answer