Case Analysis:
i. Analysis of pertinent product costs (lifecycle costs, expected/target cost, cost/value analysis, impact on profitability)
Life cycle costs
Life cycle costs consider accumulated costs over product’s entire life, including research&development costs, production costs, marketing costs, support costs, etc.
Life Cycle costs = ($180+$2) *40,000+$320,000
=$7,600,000
Expected/target cost
The target cost is the difference between selling price and target profit. The initial market for Kennel-Up’s new ferret cage was estimated to be 40,000 cages over a five-year period with a proposed selling price of $240.00. Based on the survey of focus groups and a market feasibility assessment, the marketing department expected that the new ferret …show more content…
Redesign product: The quality, safety, flexibility, size, and convenience are very basic and value-adding features, which should not be eliminated. This is because these features may affect product’s competitive advantage, its life cycle and future disposal. If Kennel produce an unsafe product, customers may have bad impression of kennel’s brand. Then, Kennel’s reputation is damaged, influencing not only the sales of ferret cage but also other product line. However, the decoration tolling costs and engraved brass personalization plate are not very useful and do not influence ferret and its owners’ life. Thus, Kennel can eliminate features of decoration tolling and engraved brass personalization plate to reduce $6 per …show more content…
Redesign process: Kennel can use CVP (cost volume profit) analysis to calculate the effective volume. If the volume is larger than the planned volume, kennel can produce more products to reduce unit costs. According to the economics of sale, high volume machine production is more profitable than low volume machine production.
3. Revaluate price: Binky mentioned that the sales will increase by reducing selling price, which is a good idea. Ferret cage is a merchandise for ferret’s living, not a luxury stuff. Although some customers would be willing to pay 20% more for a new ferret cage, ferret cage’s selling price is way much more than the average price.
4. Delaying the product could negatively impact the first year sales:
In summary, Kennel can reduce the selling price to attract more customers, while eliminate features of decorative tooling and engraved brass personalization plate, which do not influence the products’ safety and quality. Kennel can also produce more products based on the effective volume.
Discussion questions:
1. Should Kennel go back to inform the board about the cost estimate error or address these problems
i. Analysis of pertinent product costs (lifecycle costs, expected/target cost, cost/value analysis, impact on profitability)
Life cycle costs
Life cycle costs consider accumulated costs over product’s entire life, including research&development costs, production costs, marketing costs, support costs, etc.
Life Cycle costs = ($180+$2) *40,000+$320,000
=$7,600,000
Expected/target cost
The target cost is the difference between selling price and target profit. The initial market for Kennel-Up’s new ferret cage was estimated to be 40,000 cages over a five-year period with a proposed selling price of $240.00. Based on the survey of focus groups and a market feasibility assessment, the marketing department expected that the new ferret …show more content…
Redesign product: The quality, safety, flexibility, size, and convenience are very basic and value-adding features, which should not be eliminated. This is because these features may affect product’s competitive advantage, its life cycle and future disposal. If Kennel produce an unsafe product, customers may have bad impression of kennel’s brand. Then, Kennel’s reputation is damaged, influencing not only the sales of ferret cage but also other product line. However, the decoration tolling costs and engraved brass personalization plate are not very useful and do not influence ferret and its owners’ life. Thus, Kennel can eliminate features of decoration tolling and engraved brass personalization plate to reduce $6 per …show more content…
Redesign process: Kennel can use CVP (cost volume profit) analysis to calculate the effective volume. If the volume is larger than the planned volume, kennel can produce more products to reduce unit costs. According to the economics of sale, high volume machine production is more profitable than low volume machine production.
3. Revaluate price: Binky mentioned that the sales will increase by reducing selling price, which is a good idea. Ferret cage is a merchandise for ferret’s living, not a luxury stuff. Although some customers would be willing to pay 20% more for a new ferret cage, ferret cage’s selling price is way much more than the average price.
4. Delaying the product could negatively impact the first year sales:
In summary, Kennel can reduce the selling price to attract more customers, while eliminate features of decorative tooling and engraved brass personalization plate, which do not influence the products’ safety and quality. Kennel can also produce more products based on the effective volume.
Discussion questions:
1. Should Kennel go back to inform the board about the cost estimate error or address these problems