Question No: 3
It can be evaluated that the total absorption cost per unit amounts to 1,043.84, if they produce 5000 unit batch. Despite the decrease in its absorption cost per unit, it attributed to the increase in its production units from 500 to 5000 units. It would be more beneficial for the company to outsource its production and assembly function because of the cost associated with the outsourcing plan was lesser at 750 per unit, compared to the cost estimated under absorption costing method from producing and assembling the units in house at 1,043. Therefore, it can be determined that, the production and assemble function should be outsourced, as it would incur lesser cost as compared to producing the units in house.
Question No: 4
The sum of product cost can be calculated, after determining the direct material, direct labor and overhead cost associated with the production of units. This, in turn, would enable us, to determine the total product cost or sum of product cost at each individual production level, as illustrated in the Exhibit-3 below. Furthermore, the period cost are estimated under the assumption that, although the 500 units produced initially would take six month to sell and in the meantime the 1000 units would also be produced and sold in the remaining six months of the year,which would help, to determine the period cost at year-1 amounting to 2,877,307 in total and 1,918.20 per unit, as illustrated in the Exhibit-4 below.
|Moximed Inc. (Sum of product cost)|
|Sum of product cost|
|Direct Material||¥ 447,420||¥ 859,840||¥ 1,719,680||¥ 4,299,200|
|Direct Labor||¥ 15,882||¥ 31,765||¥ 63,529||¥ 158,824|
|Overhead Cost||¥ 761,200||¥ 761,200||¥ 761,200||¥ 761,200|
|Sum of Product Cost||¥ 1,224,502||¥ 1,652,805||¥ 2,544,409||¥ 5,219,224|
|Manufacturing cost per unit||¥ 2,449.00||¥ 1,652.80||¥ 1,272.20||¥ 1,043.84|
|Period Cost Allocation|
|Total Cost||Per Unit|
|Year-1||¥ 2,877,307||¥ 1,918.20|
|Year-2||¥ 2,544,409||¥ 1,272.20|
|Year-3||¥ 5,219,224||¥ 1,043.84|
Question No: 5
It was assumed that, the company should at least charge a 20% profit margin on their units sold to increase their share in the market and better position themselves to fend off competitor attacks. Firstly, it was assessed that, the company should produce its optimum capacity of units to reduce their cost of manufacturing. This would enable them to effectively price their products in the market, increasing its appeal among the potential customers. However, a selling price has been calculated at each individual production level, keeping a 20% profit cost on the cost of manufacture, as illustrated in the Exhibit-5 below. Furthermore, it can be determined that, the Moxalamp had the opportunity to be sold in all three markets illustrated in the case. The product would have to compete with different competitors in different market segments. If the company decides to launch its product to target the consumers in practicing in their households, then it would be faced by a direct competitor site Shenzhen Tech Co, selling replicas of its products at CNY2000 per units. Moreover, it could also have to compete with the Wellness centers and hospital offerings…………………
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