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The Smiths Falls Times assembles sports
watches. The watches...

The Smiths Falls Times assembles sports watches.

The watches consist of three main components,
Quartz mechanism, the case and the strap. SFC
sources components from outside and assembles
the watches in its factory.
Extensive customer survey have established that
there are three main functions for the watches in
the niche that SFT has chosen; time, water
resistance and style. Time is provided by the quartz
mechanism; water resistance and style are
provided by the case ad the strap. Replaceable
batteries power all the watches. However, once the
case is opened to replace the waterproof nature of
the watch is usually lost.
Market surveys have established three price points
for the three new watches that SFT now has in its
design stage: (1) $30 for a basic watch (2) $50 for
a basic chronograph and (3) $120 for a
multifunctional watch. SFT ha determined, given its
facility-sustaining costs and its cost of capital, that
three watches must provide a margin of $4, $8 and
$15 to be acceptable.
Based on initial speciTcation the supplier of quartz
mechanisms has quoted price of $8, $15 and $40
for the three watches. Because these mechanisms
use standard components and well-known
technology, planners at SFT consider these costs
to be as low as they can be. The implication is that
any needed target cost reduction will not be wrung
out of the quartz mechanism.
There are many sources for the wrap straps, and
the prices vary widely based functionality, which
include appearance, composition and wear.
Suppliers' quoted price ranges for the three
watches are as follows: $2-$7, $6-$9 and $20-$30.
For any given level of functionality chosen there is
little price variation among suppliers because the
watch straps are commodity products produced
cost eYectively.
The case provides two critical functions - style and
water resistance. All cases have to be guaranteed
to a depth of 50m minimums and customer focus
group show that they Tnd a guaranteed depth of
100 meters more desirable. Depending upon style
and degree of water resistance the supplier quoted
the following price ranges for the watchcases: $5 -
$15, $10 - $25 and $20 - $35. Both style and water
resistance increased in the product price.
Conversations with factory personnel indicated
that the estimated costs of assembling, packaging,
and shipping each watch were about $5, $7 and
$15. For an investment estimated at about
$5,000,000 SFT could provide management
advice to one of its suppliers. This advice would be
related to developing better manufacturing
methods. These improved methods would likely
reduce the cost of each case supplied by about
25%.
Required:
a) Compute the cost ranges for the three watches
Required
b) Identify how you would choose the speciTc strap
and case for each watch.
Required
c) How would you decide whether to make the
investment to improve the e^ciency of the case
supplier?
Required
d) Factory personnel indicate that for an
investment of about $10,000,000 the existing
factory layout could be altered to accommodate
more-e^cient production. The result would be to
reduce assembly, packaging and shipping costs by
about $2 per unit. How would you decide whether
to make this investment?

Accounting Business 섈 쉋
Managerial Accounting

FINANCE MAaII

Answer & Explanation

Solved by veri3ed expert 숨

All the explanation is below

Step-by-step explanation

a). Compute cost range of three watches:

Particulars Type

1 2 3

Quartz 8 15 40

Strap 2-7 6-9 20-30

Case 5-15 10-25 20-35

Other costs 5 7 15

Total cost range 20-35 38-56 95-120

b).
Since the case and strap is being used for the style, so
basically watches are being manufactured for diYerent
target markets. Hence the case and strap shall be chosen
as per the style statement of the target customers.
c).
Management accounting is concerned with the
requirements and use of accounting information to
managers within organizations, to provide them with the
basis to make informed business decisions that will allow
them to be better equipped in their management and
control functions, therefore in solution b decisions are to be
made, hence it will help managers in making decisions.
d).
The decision of investing shall be evaluated on the
following points:
Estimated life of the new equipment because if the
equipment is purchased every year, then it's quite
possible it may not get good proTt.

The other thing is to make a comparison with the

sales and then arrive at a decision.

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The Smiths Falls Times assembles sports watches.

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