Tablet and Phone Manufacturer - Assignment Example

 Tablet and Phone Manufacturer The society today has full transformed into an era that employs technology in almost all its spheres of life. Various activities ranging from business to learning is conducted through the internet thus expanding the market for gadgets that enable individuals to access the internet with ease; such as laptops, desktops, notebooks, tablets and smartphones. Therefore, a business that specializes in any of the above equipment is likely to succeed despite the market competition. Competition in market and tablet manufacture is stiff but the demand overwhelms the competition thus a well strategized and managed business would still experience large sale volume and hence increased profits (Goggin, 2006). Moreover, the aimed business venture would preferably operate in a low income area since it is less invaded by other technological firms. These low earning individuals are the businesses’ target group since they are likely to purchase this equipment to expand their productivity. For instance, a teacher can diversify their income sources by becoming an online essay writer. The speculated business venture would wholly specialize on tablets and smartphone due to their relatively lower price as compared to laptops and notebooks; despite the fact that they perform almost similar function. The speculated location of the firm limits it to these relatively cheaper gadgets that are affordable to the target group. The starting capital of this firm would be around $200,000. Operation of the firm is meant to be local, within the countries boundary. However, this area of coverage would be expanded with an increase in revenue. Repayment of the loan would be through submission of about $ 2,000 monthly during the early stages of commencing the operation. This payment would increase exactly six months after the commencement of the operation. The speculated project is meant to deal with electronic gadgets such as phone and tablets. The production cost of this business venture is relatively high due to the high cost of materials used in the manufacture and in addition the expertise required would be costly. Precisely the business would be more of an assembling company than a primary manufacturing industry. The business is likely to spend as follows: Production of 1 phone Smartphone necessary equipment cost $ 50 The labor for production of one phone is $ 20 Distribution cost is $10 per phone Thus, production cost for a single sums up to $ 80 Therefore, the phone can be sold at $ 100. This business earns a profit that is arrived at using the following calculation: Profit = selling price – production cost. Profit = $ 100 - $ 80 Profit = $ 20 per phone. Moreover if the firm manages to sale about 10 phone within a month then that means that the company would accumulate a total of $ 200 dollars as its profit. Out of the $ 200, $ 25 are used to repay the loan monthly and about $ 75 is channeled into payment of rent and electricity among other essentials such as water. This analysis is the cost of production and income generated from manufacture of phones. Tablets would equally generate relatively higher profits for the business. The analysis considers the business at its lowest performance period. Product pricing is the most crucial part in the company’s decision making since it determines business failure or business success. A pricing method that is not efficiently calculated and conducted would lead to business failure. An unreasonably high price for goods and services would undermine the product’s performance while an unreasonably low price determined for goods and service result in low income that might result in failure to meet the operational cost by the business. Therefore, the company is likely to fail since it would be operating under losses. In addition, price determination involves careful and critical analysis of the following aspects of the business: 1. Critical analysis of the target customers and the target market. 2. Price elasticity for the product produced has to be analyzed. 3. Product uniqueness should be evaluated. 4. The entire production life cycles should be considered. 5. The general cost of the products and the overhead should be analyzed. 6. Estimate the resulting sales volumes at different prices. 7. Consider other pricing method before determining the final [rice for the goods and services. 8. Determine the most efficient price for goods and services as the final step in price determination (Dutta, 2003). However, price determination is affected by various factors which include: Firstly, market size and composition – market research on the target market has to be conducted and the most ideal market price calculatedly determined. How large is the market? How much is the income earned by the target customers? How well do the products satisfy the needs of the consumers? Answering the following question would ease the process of efficient price determination. Market assessment of the competitors, determining their pricing techniques would guarantee business successes for the chosen business (Abrams & Abrams, 2003). Secondly, a price elasticity factor is another key issue in price determination. The demand for the products produced by the company has to be determined. Change in the demand has to be accounted for and considered in pricing. The price preferred for the products have to be sensitive to change in demand so as to retain its market during periods of economic disparity and economic thriving. Thirdly, price life cycle and production cost affects pricing. Evolutionary products are susceptible to changing consumer preference. Technology related product have to be constantly updated in relation to the prevailing consumer preferences that keep changing. Therefore, pricing should consider if the product is in line with the current consumer needs. Outdated products should be relatively cheaper as compared to products that are currently desired in the market. Moreover, most firm make mistake thus attribute to their failure in the market. Such mistakes include: pricing goods and service basing entirely on the production cost and secondly, pricing goods and services basing entirely on prices of the competitors. Instead, a good product pricing should consider or rather cover the cost of production, cover market and overhead expenses, include profit objective in pricing, afford sales commission and determine its price on a competitive basis. Moreover, an ideal pricing strategy has to be employed for good product competitiveness and market control. However, there are so many pricing strategies that a business should choose. The pricing strategy chosen should concur with the company’s objectives. These strategies include: Decoy pricing, contribution margin-based pricing, creaming, high low pricing and limit pricing (Abrams & Abrams, 2003). Limit low pricing is a price set by the monopolists to discourage entrance of other firm into the industry. The limit price is usually below the cost of production thus discouraging other firms from entering the industry. This policy is usually employed by large companies that produce a relatively larger output. On the other hand, breaking even is a point whereby the business balances between making a profit or a loss. The Budget Since the business is aiming to make profits that will enable it to repay the loan, production can be organized in the following manner: Tablet production = $100, 000 Smartphone production = 50,000 Salaries = $35,000 Essentials such as rent, electricity and water sum to $15,000 Pricing of a tablet based on contribution margin-based pricing method: Labor required for production of a single tablet = $50 Equipment required cost $120 Distribution cost $30 Therefore the production cost $200 The most ideal price that can guarantee business profit is $50. $10 from the sale of each tablet would be directed to repayment of the loan. Understanding of the conditions in which a business is operating in is a vital business essential that can guarantee business success. In addition, the business needs to acquire necessary market information before price determination and location of the company. Understanding the target market’s financial status, productivity cost and the competitor price before price determination is the most important part of pricing in any business venture. The chosen business venture is designed to operate in a low income earning locality where it is likely to experience low competition. However, the business has to adjust its price efficiently in line with the target group earning. The business speculates to earn revenue broken down in the following manner: Sale smart phone @ $20 profit Sale of tablet @ $50 profit Therefore if the business was to sale an average of 20 tablets and 150 phones in a month would see the business earning a total profit of: Smartphones $20 by 150 = $3000 Tablets = $50 by 20 = $1000 The business speculates a total payment of $2000 to the loan advanced to the business thus the business earns a net profit of $4000- $2000 = $2000. This income can be leased back to the business thus increasing the capital base. However, the credit budget is negatively affecting the business since most of its profits are channeled to the repayment of the loan. Out of the gross profit of $4000, the firm speculates to direct $2000 to the repayment of the loan. Operating budget are carefully drafted budgets that focus on managing current expense. Therefore, the most important aspect of managing expenses is carefully calculating the total expenses incurred during the course of operation and carefully enacting procedures and strategies that would be employed in the management or revenue so as to expand the income earned. Operation budget is however important since it enable a business to manage its expenses hence operating profitably. On the other hand, operating budget is disadvantageous in the sense that it turns the business into a profit oriented venture than a business aimed at developing the living standards of its citizens. However, the advantages of operation budget outweigh the disadvantage thus it should be employed in business operation since it boosts business profitability which is the key business goal for most business ventures. Management accounting was developed to serve the essentiality and needs of internal management by supporting the internal process of decision making, internal business process, resource application and customer value. The two principals involved with management accounting are incorporated into internal decision making. Management account in an organization gives a direct reflection of the exact monetary situation in the company. Unlike financial reports which tend to dwell on external funding such as loans and grants, a management accounting revolves around the financial situation within a business. This accounting technique is however essential in ensuring business success in the sense that it gives the management a deep insight into the prevailing economic condition within the organization thus guiding the formulation of economic policies and decision making as a whole. Any management accounting should aim at providing a monetary reflection of through provision and utilization of business resources and provision of cause and effect insight into the past, the present or future enterprise economic activities. This information is essential in attaining set objectives in any business venture since the management is in a position to make informed decisions. SECTION B The production per unit, in this case one smartphone and a tablet is calculated as follows. Smartphone Smartphone necessary equipment cost $ 50 The labor for production of that phone is about $ 20 Distribution cost is about $10 per phone Thus then production cost sums up to $ 80 Selling price = $100 Tablet Labor required for production of a single tablet = $50 Cost of equipment required $120 Distribution cost $30 Therefore, production cost is $200 Projected selling price is $250 A break-even point is the point of balance between making either a profit or a loss. In economics, it is a point in which revenue and expenses equal. There is no net loss or profit. Break even can be calculated by dividing fixed cost by contribution margin (Cafferky, 2010). Fixed cost for production of a tablet is $200 The contribution margin = $250 - $200 = $50 Break-even = $200 ÷ $50 = 4 Operation budget for smartphones can be drafted in the following manner: Smartphone necessary equipment cost $ 50 The labor for production of that phone is about $ 20 Distribution cost is about $10 per phone Thus, the production cost sums up to $ 80 Therefore, the phone can be sold at $ 100. If the business will be selling 150 phones per month, in a year it will sell 1800 phones thus the business is likely to earn a gross profit of $36,000. The business also earns a gross profit of $12,000 in tablet manufacture. Hence a total gross profit of $48,000. The business is supposed to repay $24,000 per year hence $24,000 may be lease back into the capital. Repayment may increase as the operation proceeds. The principles of marginal cost involve the aspect of fixed price and deviation for monthly performance. Analysis of the profit involves total contribution and the extra cost incurred in the course of the operation. Monthly marginal costs are calculated in the earlier sections. References Abrams, R., & Abrams, R. M. (2003). The Successful Business Plan: Secrets & Strategies. The Planning Shop. Print Cafferky, M. (2010). Breakeven Analysis: The Definitive Guide to Cost-Volume-Profit Analysis. Business Expert Press. Print Cromar, S. (2010). Smartphones in the U.S.: Market Analysis. Retrieved From: https://www.ideals.illinois.edu/bitstream/handle/2142/18484/Cromar,%20Scott%20-%20U.S.%20Smartphone%20Market%20Report.pdf?sequence=2 Dutta (2003). Cost Accounting: Principals and Practice. Pearson Education. Print. Goggin, G. (2006). Cell Phone Culture: Mobile Technology in Everyday Life. Routledge. Print Appendices 1. The business’ Proposed Budget or Operating Budget REVENUE BUDGET 2014($) Mobile revenue 240,000 Tablet revenue 300,000 Additional revenue from competition held 50,000 590,000 EXPENSES Equipment acquisition 100,000 Transport for product and materials 20,000 Rent 20,000 Electricity 50,000 Water 10,000 Labor 200,000 Equipment repair 10,000 Advertising 20,000 Legal fee to the local authorities 20,000 Loan repayment 50,000 500,000 2. Cash Budget Estimated receipt January February March Cash sales (phone) $40,000 $50,000 $40,000 Cash sales (tablet) $50,000 $30,000 $40,000 Total estimated receipt $90,000 $80,000 $80,000 Estimated payment Purchases $40,000 $20,000 $30,000 Other expenses $5,000 $3,000 $4,000 Labor $10,000 $10,000 $10,000 Loan repayment $4,000 $4,000 $4,000 Total expenses $59,000 $37,000 $48,000 Read More