- Hy: $15.55k, Ryan: $100k, and Ryan: $85k are sunk costs. Should not impact your present/future decision.
Since sunk costs are costs which have been incurred in the past or costs which cannot be recovered they do not affect future and present decision. According to the case study Hy, $15.55k, Ryan: $100k and Ryan: $85k is sunk costs and therefore they have no impact on future decision. They have no effect on future or present decision because they have been totally incurred meaning that they cannot be recovered back into the business. Because decision making only has an effect on future course of the business, these costs therefore should be considered irrelevant in decision making process as they cannot be recovered by the business. It is important to ignore these costs such as Hy: $15.55k, Ryan: $100k and Ryan: $85k because the purpose of decision making is to change the course of the future and since these costs cannot be altered they must be avoided when making a decision on how to proceed. It is vital therefore to treat all these costs as gone already and base the decision making process on future and present costs and opportunities. The inclusion of these costs in decision making and they have been considered sunk costs, it is likely to make a bad decision which may negatively affect the business.
- Find PW for factory for both low and high sale prices for 30k sales in 1st year and 100% sale growth each year. Then make decision.
Labor cost 5% of 316.67 =15.833
Material cost 10% of 400= 4.00
Total variable cost = 19.833
Production and packaging fixtures =75000
Test equipment and software =225000
Fee marketing research =100000
Pocket expenses total $15,550
First, they negotiated an annual license fee of $150,000
Promotional budget 60,000
Total fixed cost 615550
Total cost = Fixed cost + variable cost
615550 + (19.833 x30000) 594990 = 1210540
End user prices are expected in range of $83.55 to $106.55.
Average price = ($83.55+$106.55)/2 = $95.05
|Year||Units||Price||Variable cost per unit||Contribution|
|Year||Units||Price||Variable cost per unit||Contribution||Fixed costs||B.E.P|
Annual Demand for this product
The range depending on selling price for the project’s present value
|Year||demand||Selling Price||Revenues||Cost||Cash flow||NPVIF||PV|
It is important to go with this idea because it is likely to increase the sales volumes in units when there is a reduction in prices. This also ensures that the business generates high profit margin which maximizes shareholders wealth and profit.