## 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.

### mathematics

##### Description

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 (5 marks)

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.

Pricing Analysis (5 marks)

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 (10 marks)

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 (10 marks)

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.

·         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 (4 marks for analysis, 1 mark for overview)

·         A Pricing Analysis that provides an overview of how the analysis was conducted and provides sample calculations so the work can be verified (4 marks for analysis, 1 mark for overview)

·         A Funding analysis that provides an overview of how the analysis was conducted and provides sample calculations so the work can be verified (9 marks for analysis, 1 mark for overview)

·         A Break-even analysis that provides an overview of how the analysis was conducted and provides sample calculations so the work can be verified (9 marks for analysis, 1 mark for overview)

·         A conclusion that recommends which Gadget to bring to market.