Rapid changes in technology and customer preferences

    Rapid changes in technology and customer preferences have shortened the product life cycle with a propensity of reducing profit margins for most products. SJG
The post Rapid changes in technology and customer preferences first appeared on COMPLIANT PAPERS.

Rapid changes in technology and customer preferences have shortened the product
life cycle with a propensity of reducing profit margins for most products. SJG Inc. is
planning to develop a new electric water pump with a two- year warranty.
• Cost of product development: £ 200,000.
• Cost of warranty repairs: £ 9 per repair, in 6 percent of the units, one year after
sales (during and after the product life).
• Fixed costs per annum are £ 110,000.
• Cost of end of product-life responsibilities due to disposal requirements: £ 3 per
unit, two years after sale.
• Selling price: £ 40 per unit in year 1 and reduction of £5 each year thereafter.
• Variable cost: £ 20 per unit in year 1 and reduction of £2 each year due to learning
curve experience effects.
• The projected sales volumes over a 3-year period are as follows: 12,000 units in
the first year, and 24,000 and 6,000 units respectively for the following 2 years.

Required: Prepare a product life cycle budget and advise the management whether SJG
Inc.’s product should be discontinued after two years or not. Provide a reasoned
basis for your advice.

The post Rapid changes in technology and customer preferences first appeared on COMPLIANT PAPERS.

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