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The above table indicates that the sales volume which is required in order to achieve a $100 M. profit at a price of $245 with an R&D investment of 30% is 1,676,190 units. This is calculated by dividing the total revenue accrued by the unit price.
X6:
The product X6 has been in the market for a total of 2 years. Unlike the product x5, the customers take great consideration of the product quality while making the purchase decision. The provision of a better quality can be achieved by increasing the R&D investment for the product. There is also a need for a price increase in order to take advantage of the investment. The expected target profits is considerably higher than the one for X6 due to the fact that the product would soon reach its peak moments and then roll into maturity phase.
The X6 product will attract a maximum number of clients and therefore act as the best handheld device in terms of profitability. The expected sales volume at the proposed prices from the period 2006-2009 is indicated in the calculations below.
X7:
The product X7 is the latest handheld device in the market with an age of 1 year. The customers are very sensitive to both the product...
It is therefore very logical for us to expect some profits from x7 at its growth stage by increasing the level of R&D investment in its maturity period while also increasing its price. The initial expected profits will not be a lot at the beginning but the level of expectation will grow as X7 gets towards maturity. The CVP analysis is indicated below.
Conclusion
The VVP analysis has helped us in making of important decisions. Using the obtained data, we are able to make the decision for the 2006-2009 period in one go. We are also able to calculate the exact sales volume figures needed to achieve the target profit levels. The sales volume figures are important since they help us in appropriately adjusting the production process. The optimum price calculation is also calculated in order to avoid losses and help in achieving the breakeven point.
References
Cafferky, M and Wentworth, J (2010.Break Even Analysis. Business Expert Press, 2010
Horngren, CT., Datar, SM., Foster, GM (2006).Cost Accounting: A Managerial Emphasis, Twelfth Edition, Pearson Education, Inc.
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