Question

QUESTION 3

1. An engineering design company is deciding between the development of two products that have been pitched by different design teams.

   Your task is to compare the two products using a break even analysis and make a recommendation to management about which product to go ahead with.

   Upload a file with all your working out CLEARLY LABEL YOUR ANSWERS.

   1. For Product 1:
   1. 1. Calculate how long it will take to break even for Product 1 (answer in years and months).
      2. What is the initial investment required? (1 mark)
      3. What will the profit be after 5 years of selling the Product 1 as planned?
   2. For Product 2:
      1. Calculate how long it will take to break even for Product 2 (answers in years and months).
      2. What is the initial investment required? (1 mark)
      3. How long will it take to make the same profit as calculated in setion 1c) (ie same profit as Product 1 after 5 years)?
   3. Which product will you recommend that the company goes ahead with and why?
   4. If you could make a change to the design or manufacture to improve the financial side of your suggested product, where would you focus your changes and why?

   Product 1:

   • Engineers have spent $105 000 in costs designing and prototyping the product
   • Each product will cost $15 to manufacture
   • In order to be successful in the market, they believe this product will need to have a sales price of $50
   • They expect to be able to sell 1200 units per year

   Product 2:

   • Engineers have spent half the fixed costs of Product 1
   • They expect the variable costs for this product to be double that of Product 1
   • The sales price and expected sales volume will be the same as Product 1

Answer 1