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Solution File. New Product Development

The document presents an analysis of a new product's costs, revenues, and breakeven point under different scenarios. It uses tables and formulas to model the effect of changing R&D costs and selling prices on the breakeven quantity. The analysis finds that lowering R&D costs or raising prices reduces the breakeven point. Graphs and calculations determine the baseline breakeven point is 1,000 units when R&D is $300,000 and the selling price is $500 per unit.

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53 views2 pages

Solution File. New Product Development

The document presents an analysis of a new product's costs, revenues, and breakeven point under different scenarios. It uses tables and formulas to model the effect of changing R&D costs and selling prices on the breakeven quantity. The analysis finds that lowering R&D costs or raising prices reduces the breakeven point. Graphs and calculations determine the baseline breakeven point is 1,000 units when R&D is $300,000 and the selling price is $500 per unit.

Uploaded by

kezokal42
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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EXHIBIT 1

A B C D E F G H I
1 New Product Development: Model and Solution
2 1. Economic Data:
3 R&D Cost ($) $300,000
4 Production Cost ($/unit) $200
5 Selling Price ($/unit) $500
6
7 2. Model: Quantity Revenue Cost Profit 5. Graphical Analysis
8 100 $ 50,000 $ 320,000 ($270,000) $1,000,000
9 3. Analysis by Enumeration 200 $ 100,000 $ 340,000 ($240,000) Breakeven Chart
10 300 $ 150,000 $ 360,000 ($210,000) $800,000
11 400 $ 200,000 $ 380,000 ($180,000)
12 500 $ 250,000 $ 400,000 ($150,000) $600,000
13 600 $ 300,000 $ 420,000 ($120,000)
$400,000 Revenue
14 700 $ 350,000 $ 440,000 ($90,000)
15 800 $ 400,000 $ 460,000 ($60,000) $200,000
Cost
16 4. Solution by Inspection 900 $ 450,000 $ 480,000 ($30,000) Profit
17 Breakeven Point = 1000 $ 500,000 $ 500,000 $0 $-
18 1100 $ 550,000 $ 520,000 $30,000 0 500 1000 1500 2000
19 1200 $ 600,000 $ 540,000 $60,000 $(200,000)
20 1300 $ 650,000 $ 560,000 $90,000
21 $(400,000)
1400 $ 700,000 $ 580,000 $120,000 Quantity
22 1500 $ 750,000 $ 600,000 $150,000
23
24 Formulas: Explanation:
25 C8. =$B$5*B8 Revenue = Price*Quantity
26 D8.=$B$3+$B$4*B8 Cost = Fixed+Variable*Quantity
27 E8. =C8-D8 Profit = Revenue - Cost
28
29 Quantity Revenue Cost Profit
30 6. Solution by Goal Seek 1000 $ 500,000 $ 500,000 $0 Set Cell $E$30 To Value 0 by Changing Cell $B$30
31
32 7. Solution by Algebra 1000 B32. =B3/(B5-B4) BE Point = Fixed Cost / Contribution Margin

Model and Solution


EXHIBIT 2

A B C D E F G H I
1 New Product Development: Sensitivity Analysis
2 Economic Data:
3 R&D Cost ($) $300,000
4 Production Cost ($/unit) $200
5 Selling Price ($/unit) $500
6
7 8. Effect of R&D Cost and Selling Price on Breakeven Point: Two-way Data Table Formulas:
8 R&D Cost B9, B22 and C26. =$B$3/($B$5-$B$4)
9 BE Point: 1000 $200,000 $300,000 $400,000 B9:E11. {=TABLE(B3,B5)}
10 Selling Price $400 1000 1500 2000 Recalculates B9 as
11 $500 666.666667 1000 1333.3333 B3 changes over C9:E9 and
12 B5 changes over B10:B11
13 9. Effect of R&D Cost and Selling Price on Breakeven Point: By One Formula
14 R&D Cost
15 $200,000 $300,000 $400,000
16 Selling Price $400 1000 1500 2000 C16. =C$15/($B16-$B$4)
17 $500 666.666667 1000 1333.3333 copied to C16:E17
18
19 10. Effect of R&D Cost only on Breakeven Point: One-way Data Table
20 R&D Cost
21 $200,000 $300,000 $400,000 B21:E22. {=TABLE(B3,)}
22 BE Point: 1000 666.666667 1000 1333.3333 Recalculates B22 as
23 B3 changes over C21:E21
24 11. Effect of Selling Price only on Breakeven Point: One-way Data Table
25 BE Point:
26 1000 B26:C27. {=TABLE(,B5)}
27 Selling Price $400 1500 Recalculates C26 as
28 $500 1000 B5 changes over B27:B28

Sensitivity Analysis

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