SLP 3: Inputs Diagnosis, SLP: Time Warp bus 599 - Essay Example

The price was maintained at $ 250 in 2006 and later reduced to $ 240 to induce more repeat purchases from existing customers. From the third year, the product X5 was discontinued, as the market was saturated and the fixed costs for the product X5 were high. As the market saturation is 31 %, the price can be reduced to induce more sales volume. However, as the fixed costs are higher, it is essential to identify the break even volume. The contribution margin per unit is found to be $ 110. The number of units to be sold to cover the total fixed costs gives the breakeven volume (Emery).

Reducing the price to $ 245 would yield the following results: This is significantly lesser than the volume achieved in the previous run (1,766,216). As the price has been reduced, the sales volume is expected to increase. In 2007, the price is maintained at $ 245 and the R & D at 5 %. CVP analysis indicates that In order to earn similar level of profit, the sales volume required is 1,587,993. The market saturation will reach 80 % in 2006. Moreover the product has been in the market for 5 years now.

Sales volume attained by Joe Schmoe in 2008 was significantly lesser and resulted in a loss. Hence the product X5 is discontinued in 2008 as the product will not be able to reach breakeven sales volume. In Time warp 1, the strategy was based on the fact that the market demand for the product almost completely depended on the performance of the product. Hence R & D was maintained at higher levels throughout the development phase and the growth phase. 50 % R & D was allocated to the product X6 in 2006 and 2007 whereas 40 % and 35 % in the years 2008 and 2009 respectively.

The price was increased slightly to cover up the increased R & D costs, as price did not have a significant effect on sales volume. After slight increases in the price in 2006 and 2007, it was reduced to $ 400 again in 2009 when the product entered its shakeout phase. As the variable costs for X6