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 23 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 Breakeven 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.
Gadget 
Engineers/
Gadget 
Hardware
Technicians/ Gadget 
Software
Technicians/ Gadget 
A 



B 



C 



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 markup
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 $100,000 for
the loan regardless of the principle borrowed. A second investor is willing to loan the
money under a simple interest payment plan with an annual interest rate of 2.5%
but requires the loan be repaid after 6 months.
Provide Acme with a detailed comparison of the financing options and determine
how each impacts the breakeven analysis below. To do so use the FV formula for
simple interest to compare the two options. Determine the rate of interest being charged
under the first option. Similarly, determine
the cost of borrowing under the second option.
What amount of principle must be borrowed in order for the two options
to be equivalent?
Breakeven analysis
(10 marks)
The following Cost
and Sales projections were captured by the Acme’s production and
Sales/Marketing teams.
Table : Projected
costs
Gadget 
Factory Setup
($/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 breakeven
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 (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 Breakeven 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.