BLTD is investigating the financial viability of a new product called Wimble.The Wimble is a short life product for which a market has been identified at an agreed design specification.The product will only have a life of 12 months.The following estimated information is available in respect of Wimble. • Sales should be 120,000 in the year in batches of 100 units. An average selling price of K1,050 per batch of 100 units is expected. All sales are for cash. • An 80% learning curve will apply for the first 700 batches after which a steady state production time will apply, with the labour time per batch after the first 700 batches equal to the time for the 700th The cost of the first batch was measured at K2,500.This was for 500 hours at K5 per hour. • Variable overhead is estimated at K2 per labour hour. • Direct material will be K500 per batch of wimble for the first 200 batches produced. The second 200 batches will cost 90% of the cost per batch of the first 200 batches. All batches from then on will cost 90% of the batch cost for each of the second 200 batches. All purchases are made for cash. Wimble will require additional space to be rented. These directly attributable fixed costs will be K15,000 per month.A target net cash flow of K130,000 is required in order for this project to be accepted. Required • Prepare detailed calculations showing total (cash) revenue, Total costs and total net cash flow and show whether Wimble will provide the target net cash flow. • Calculate what length of time the second batch will take if the actual rate of learning is 80%, 90% & 75%. Which rate shows faster learning? • Suggest any five (5) possible actions that B LTD could take to improve the net cash flow calculated above
BLTD is investigating the financial viability of a new product called Wimble.The Wimble is a short life product for which a market has been identified at an agreed design specification.The product will only have a life of 12 months.The following estimated information is available in respect of Wimble.
• Sales should be 120,000 in the year in batches of 100 units. An average selling price of K1,050 per batch of 100 units is expected. All sales are for cash.
• An 80% learning curve will apply for the first 700 batches after which a steady state production time will apply, with the labour time per batch after the first 700 batches equal to the time for the 700th The cost of the first batch was measured at K2,500.This was for 500 hours at K5 per hour.
• Variable overhead is estimated at K2 per labour hour.
• Direct material will be K500 per batch of wimble for the first 200 batches produced. The second 200 batches will cost 90% of the cost per batch of the first 200 batches. All batches from then on will cost 90% of the batch cost for each of the second 200 batches. All purchases are made for cash.
Wimble will require additional space to be rented. These directly attributable fixed costs will be K15,000 per month.A target net
Required
• Prepare detailed calculations showing total (cash) revenue, Total costs and total net cash flow and show whether Wimble will provide the target net cash flow.
• Calculate what length of time the second batch will take if the actual rate of learning is 80%, 90% & 75%. Which rate shows faster learning?
• Suggest any five (5) possible actions that B LTD could take to improve the net cash flow calculated above
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