Answer To: Integrative assignment 4 Directions: For this assignment you will need to evaluate the scenario...
Jyoti answered on Mar 13 2021
Integrative assignment 4
PRODUCT LAUNCH
Table of Contents
1. Executive Summary
2. Scenario Analysis
3. Decision
4. References
1. Executive summary
As a lead project manager, the task is to analyze the available data for two products namely, ‘Redesign’ and ‘New’ and decide which product should be launched and at what price ?
Following four scenarios are taken under consideration and we are determining operating profit and risk under each scenario:
1. Scenario 1: Price product ‘Redesign’ at $425 per unit and capacity at 5,00,000 units
2. Scenario 2: Lower the price of product ‘Redesign’ to $370 per unit and expand capacity to 7, 50,000 units.
3. Scenario 3: Price product ‘New’ at $600 per units and keep capacity at 3,50,000 units
4. Scenario 4: Lower the price of product ‘New’ to $550 per units and expand capacity to 4,75,000 units
On the basis of our analysis, we are recommending selection of product ‘redesign’ to be launched at $ 370 per unit and for that, production capacity needs to be enhanced to 7,50,000 units by making additional capital investment.
Further, we are also summarizing following components for our selected product to be launched at $ 370 per unit:
(a) Annual Fixed costs = 6, 32, 10,000
(b) Total variable cost per unit = 248.001
(c) Contribution margin per unit = 122
(d) Breakeven point = 5, 18,115
2. Scenario Analysis
(i) Scenario 1: Product “Redesign” at to be sold at $425 per unit and capacity at 500,000 units
Particulars
Low end demand at 235000 units
High end demand restricted to 5,00,000 units
Revenue (selling price 425 per unit)
9,98,75,000
21,25,00,000
Less: Variable costs
Material cost (148.75 per unit)
3,49,56,250
7,43,75,000
Labour cost (3 hours per unit paid at 27.5 per hour)
1,93,87,500
4,12,50,000
Sales commission (Refer note 1)
4375823.68
9310263.15
Contribution (Revenue- Total variable costs)
4,11,55,426
8,75,64,737
Less: Fixed costs
Management salary (1,00,000 p.a. to a manager)
300000
300000
Supervisor salary (75,000 p.a. to a supervisor)
750000
750000
Marketing expense
160000
160000
Operating profit before depreciation (Contribution- total fixed costs)
3,99,45,426
8,63,54,737
Depreciation
60000000
60000000
Operating profit after depreciation
(2,00,54,574)
2,63,54,737
Note 1: Calculation of purchase price per unit
Material per unit
148.87
Labour per unit
82.5
Direct sales commission per unit
0.05x
Fixed costs
122.42
Total purchase price
x
x = 353.79+0.05x
0.95x = 353.79
x = 353.79/0.95
= 372.4105263
Now , direct sales commission per unit
18.62052632
Note 2: Average operating profit
Total operating income of 5 years at 235000 units
-10,02,72,868
Total operating income of 5 years at 500000 units
13,17,73,684
Average operating profit
1,57,50,408
Operating leverage (OL) = Contribution margin/operating income
At 2, 35,000 units = 4, 11, 55,426 / (2, 00, 54,574)
= -2.05
At 5, 00,000 units = 8, 75, 64,737/ 3.322542637
= 3.32
Here, operating at low production will result in operating loss and fixed costs are not covered.
(ii) Scenario 2: Product “Redesign” at to be sold at $370 per unit and expand capacity to 7, 50,000 units
Particulars
Low end demand at 375000 units
High end demand restricted to 7,50,000 units
Revenue (selling price 370 per unit)
13,87,50,000
27,75,00,000
Less: Variable costs
Material cost (148.75 per unit)
5,57,81,250
11,15,62,500
Labour cost (3 hours per unit paid at 27.5 per hour)
3,09,37,500
6,18,75,000
Sales commission (Refer note 1)
6236842.10
12473684.21
Contribution...