Bennet

Short review:

The director of bennet are evaluating a proposal to the enter in market for single product which has an estimated life cycle of four year. The company has recently paid $200,000 to a market research consultancy for work done in respect of the proposal.

Evaluation relating to the proposed manufacture and sale of the new product.

	year 0	year 1	year 2	year 3	year 4	year 5	NPV	IRR
sales unit		50,000	80,000	60,000	25,000
Selling price per unit	80	74	78	85
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	%
Cost/Residual unit	-2700					750
Working Capital	-800					800
Advertisings	-1200	-800	-400	-200
Sales revenue		4,000	5,920	4,680	2,125
Variable Cost		-1750	-2800	-2100	-875
Attributable Cost		-700	-700	-700	-700
Net Cash flow	-4700	750	2,020	4,680	1,350	750
Discount Factor at 14%	1.000	0.877	0.769	0.675	0.592	0.519
Discounted Cash Flow	-4700	675.75	1,553.38	1,134	799.20	389.25
NPV at 14%							-166.42
Discount Factor at 12%	1.000	0.893	0.797	0.712	0.636	0.567
Discounted Cash Flow	-4700	670	1,610	1,196	859	425
NPV at 12%							59.70
IRR								12.53

Pricing:

A value that will purchase a definite quantity, weight, or other measure of a good or service. As the consideration given in exchange for transfer of ownership price forms the essential basis of commercial transactions. It may be fixed by a contract, left to be determined by an agreed upon formula at a future date, or discovered or negotiated during the course of dealings between the parties involved. The changes in selling price are indented to help procedure this desired level of market share.

Capital Investment:

Money invested in a business venture with an expectation of income, and recovered through earnings generated by the business over several years. It is generally understood to be used for capital expenditure rather than for day-to-day operations or other expenses. The capital outlay required to manufacture the product is set. There is no reason to argue with this but residual value Recognized in year 5.

Advertising costs:

These stand at $2.6 million in undiscounted terms and should be examined closely. Although it is mistake to assume that marketing expenditure should be the first focus of any cost exercise on the project, the initial outlay in year.

Variable Cost:

Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output. Fixed costs and variable costs comprise total cost.

Target Marketing:

The beauty of target marketing is that it makes the promotion, pricing and distribution of your products and/or services easier and more cost-effective. Target marketing provides a focus to all of your marketing activities.

Taw Fuzail

Short Review:

Telecoms at work (TAW) manufacture and markets office communications systems. During the year ended 31 may 2008 TAW made an operating profit of $30 million on sales of $360 million. However, the directors are concerned that products do not conform to the required level of quality and TAW is therefore not fulfilling its full potential in terms of turnover and profits achieved.

REQUIRED 1:

Cost Analysis

		year ended
		31-May-08
		$'000	$'000	% OF TURNOVER
Prevention costs
Training		180
Design engineering	(48,000*$96)	4,608
Process engineering	(54,000*$70)	3,780	8,568	2
Appraisal costs
Inspection	(288,000*$50)	14,400
Product testing		72	14,472	4
Internal failure costs
Rework	(2,100*$4,800)	10,080	10,080	3
External failure costs
Repair	(2,700*$(4,600+240+280))	13,824	13,824	4
Total costs of quality			46,944
Opportunity costs			12,960	4
Total costs of quality			59,904	17

Opportunity cost is the contribution associated with the loss of potential sales arising out of a poor public perception of quality. The estimate of lost sales is 4% of turnover. These are not ordinarily included in the four standard categories of quality cost but could be classified as external failure cost.

REQUIRED 2:

Financial consequences of options for improving quality.

OPTION 1
Costs		Description		Workings	$'000
Prevention cists		Physical inspection		10,000*$50	500
Savings
Internal failure cost		Variable cost of rework		720*$1,920	1,382.40
External failure cost		Variable cost customer support		600*$96	57.6
		Transportation		600*$210	126
		Warranty repair		600*$1,700	1,020.00
Extra sales				300*$7,200	2,160.00
					4,749.00
Net saving					4,246.00
OPTION 2
Costs					$'000
Prevention cists		Redesign cases		2,000*$96	192
		Process engineering		5,000*$70	350
Savings
Internal failure cost		Variable cost of rework		960*$1,920	1,843
External failure cost		Variable cost customer support		840*$96	81
		Transportation		840*$210	176
		Warranty repair		840*$1,700	1,428
Extra sales		360*$7,200		360*$7,200	2,592
					6,120
Net saving					5,578

Option 2 has a larger estimate net saving at $5,578,000 and should be elected as this is @ 1,332,000 more the estimate for option 1 $4,246,000.

Posted in: Bennet,E-commerce Industry of Pakistan.,Finance