Question

Project Details

The Acme Gadget Company designs and manufactures consumer gadgets. Last year, Acme began development of three prototype gadgets with the intention of bringing all three to market. However, a recent downturn in the economy has forced Acme to reconsider due to decreased consumer demand that is projected to remain low for 2-3 years. As such, Acme will bring only one of the prototypes to market. They’ve hired a consulting firm to advise which prototype to bring to market. The managing partner of the consulting firm has assigned you to conduct the following analyses: Production analysis, Pricing Analysis, Financing analysis and Break-even analysis. The information you need to conduct each analysis is provided below.

Production analysis

Prototypes of three gadgets were produced by Research and Development (R&D) teams that consisted of engineers, hardware technicians, and software technicians. It is standard practice for Acme’s R&D team members to focus on several projects at once as determined by the needs of the project and each team member’s specific expertise. As such, its unclear as to how many engineers, hardware techs and software techs will be needed to produce each gadget type. Instead, Acme tracks the number of hours that engineers, hardware technicians and software technicians dedicate to each project by hours per individual. This data allows Acme to recover the number of Engineers, Hardware technicians and Software technicians required for the production of each Gadget. The following data was collected during the production of the prototypes:

Gadget	Hours per Engineer	Hours per Hardware Tech	Hours per Software Tech	Total Number of hours to produce prototypes	Number of prototypes produced
A	25	45	25	1,000	20,000
B	196	32	30	1,700	25,000
C	63	59	100	2,000	16,000

From the production data, formulate a system of equations that will allow you to recover the number of Engineers, Hardware Technicians and Software Technicians needed to create the prototypes of Gadget A, Gadget B and Gadget C. Solve the system of equations you have developed to determine the number of Engineers, Hardware Technicians and Software Technicians

Using this information complete the table below.

Gadget	Engineers/ Gadget	Hardware Technicians/ Gadget	Software Technicians/ Gadget
A
B
C

Pricing Analysis

Acme’s Marketing team has established a manufacturer’s suggested retail price (MSRP) for each gadget based on the feedback of consumers and tech journalists that were selected to review the prototype gadgets. The MSRP has been set as $449, $499, and $425 for Gadgets A, B and C respectively. Acme’s sales team wishes to establish a sale price to retailers (The Net Price) that will allow retailers a series of markdowns for the gadget, first by 10% during regular sale periods, with room for a second discount of 20% (applied to the first) during special sale periods (Black Friday and Boxing Day), while still allowing the retailer a mark-up of at least 15% over the net price. Find the maximum net price for each gadget and determine how this net price impacts the breakeven analysis below.

Financing Analysis

In order to launch the new gadget line, Acme is securing investor financing to cover the first year of fixed costs from private investors. A first private investor is willing to loan Acme the funds needed to cover the fixed costs associated with producing the chosen gadget to be paid back in 1 year with a fixed cost of borrowing of $100,000; that is, the lender will charge a fixed dollar amount of $100,000 for the loan regardless of the principle borrowed. A second investor is willing to loan the money under a simple interest payment plan with an annual interest rate of 2.5% but requires the loan be repaid after 6 months. Provide Acme with a detailed comparison of the financing options and determine how each impacts the breakeven analysis below. To do so use the FV formula for simple interest to compare the two options.  Determine the rate of interest being charged under the first option. Similarly, determine the cost of borrowing under the second option. What amount of principle must be borrowed in order for the two options to be equivalent?

Breakeven analysis

The following Cost and Sales projections were captured by the Acme’s production and Sales/Marketing teams.

Table : Projected costs

Gadget	Factory Set-up ($/year)	Utilities ($/year)	Property Taxes ($/year)	Salary - Engineers $/FTE	Salary – Hardware technician $/FTE	Salary – Software technician $/FTE	Financing costs ($/year)
A	10,000,000	50,000	25,000	185,000	150,000	120,000	TBD
B	7,500,000	50,000	25,000	185,000	150,000	120,000	TBD
C	12,500,000	50,000	25,000	185,000	150,000	120,000	TBD

Table : Projected sales

Gadget	Production Capacity (Units/year)	Target Sales at 50% production Capacity (Units/year)	Target Sales at 75% production Capacity (Units/year)	Target Sales at 100% production Capacity (Units/year)	MSRP	Net Price
A	250,000	125 000	187,500	250,000	449	TBD
B	150,000	75,000	112,500	150,000	499	TBD
C	1,000,000	500,000	750,000	1,000,000	425	TBD

Run a break-even analysis using the information captured in projected costs and revenues tables and any relevant information from your production, pricing and financing analyses. Summarize potential profits in the table below.

Table: Projected Profits (Losses)

Gadget	Production Capacity (Units/year)	Target Sales at 50% production Capacity (Units/year)	Target Sales at 75% production Capacity (Units/year)	Target Sales at 100% production Capacity (Units/year)
A	250,000
B	150,000
C	1,000,000

Report

Once you’ve completed your analyses, you’ll need to detail your findings in a report.

Your report should include:

• An introduction that provides an overview of why the report was requisitioned and explaining why each analysis is conducted,
• A Production analysis that provides an overview of how the analysis was conducted and provides sample calculations so the work can be verified
• A Pricing Analysis that provides an overview of how the analysis was conducted and provides sample calculations so the work can be verified
• A Funding analysis that provides an overview of how the analysis was conducted and provides sample calculations so the work can be verified
• A Break-even analysis that provides an overview of how the analysis was conducted and provides sample calculations so the work can be verified
• A conclusion that recommends which Gadget to bring to market.

Answer 1

ANSWER:

Lets assume that X1, X2 and X3 are the Engineering, Harware Tech and SOftware Tech emplyees in the company.

Thus the data can be first table be translated to

25 X1 + 45X2 + 25 X3 = 1000

195X1 + 30 X2 + 30 X3 = 1500

62 X1 + 58 X2 + 98 X3 = 2000

In the matrix method on excel, the formula used are as follows :

AX = Y, thus X = (Inv A)* Y

where A, X and Y matrix are as follows,

|A| =	25	45	25
	195	30	30
	62	58	98
|X|=		X1		|Y|=	1000
		X2			1500
		X3			2000

We use Minverse function in excel to calcualte the Inv A matrix, and we get

| Inv A| =	-0.0024	0.0058	-0.0012
	0.0338	-0.0018	-0.0081
	-0.0185	-0.0026	0.0157

Then we calculate X matrix value using MMULT function as MMULT( Array Ainverse, Array Y)

we get the solution as

X1 = 4, X2 = 15, X3 = 9,

For Gadget B,

195x+30y+30z=1500

After doing factorisation

The values of x,y and z should be - 6,4 and 10.

For Gadget C,

62x+58y+98z=2000

The values for x,y and z should be 4,15 and 9.

Table below is the final answer.

Based on the information given, I have made the following assumptions

1. The assumption on Expected Sales based for one year

2. Assumption of number of employees as the amount given below is $ / FTE rate

Based on the given information and above assumptions, please find the below computation of Expected Total sales, Expected Total Costs, Net Income and Total Investment required for the project of the factory setup as well as a working capital requirement

_______________________________________________________

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