Understanding Business
Understanding Business
12th Edition
ISBN: 9781259929434
Author: William Nickels
Publisher: McGraw-Hill Education
Bartleby Related Questions Icon

Related questions

Question

a) Explain the principles behind lifecycle costing and briefly state why Fisher in particular should consider these lifecycle principles.

 

b) Produce the budgeted results for the game 'Stealth' and briefly assess the game's expected performance, taking into account the whole lifecycle of the game.

c) Explain why incremental budgeting is a common method of budgeting and outline the main problems with such an approach.

d) Discuss the extent to which a meaningful standard cost can be set for games produced by Fisher. You should consider each of the cost classifications mentioned above.

Fisher designs, develops and sells many PC games. Games have a short lifecycle lasting
around three years only.
Perfomance of the games is measured by reference to the profits made in each of the
expected three years of popularity. Fisher accepts a net profit of 35% of tumover as
reasonable. A rate of contribution (sales price less variable cost) of 75% is also considered
acceptable.
Fisher has a large centralised development department which caries out all the design
work before it passes the completed game to the sales and distribution department to
market and distribute the product
Fisher has developed a brand new game called Stealth and this has the following budgeted
performance figures.
The selling price of Stealth will be a constant £30 per game. Analysis of the costs show that
at a volume of 10,000 units a total cost of £130,000 is expected. However at a volume of
14,000 units a total cost of £150,000 is expected. If volumes exceed 15,000 units the fixed
costs will increase by 50%.
Stealth's budgeted volumes are as follows:
Year 2
16,000 units
Year 3
Year 1
Sales volume
8,000 units
4,000 units
In addition, marketing costs for Stealth will be £60,000 in year one and £40,000 in year two.
Design and development costs are all incurred before the game is launched and has cost
£300,000 for Stealth. These costs are written off to the income statement as incurred (ie
before year 1 above).
expand button
Transcribed Image Text:Fisher designs, develops and sells many PC games. Games have a short lifecycle lasting around three years only. Perfomance of the games is measured by reference to the profits made in each of the expected three years of popularity. Fisher accepts a net profit of 35% of tumover as reasonable. A rate of contribution (sales price less variable cost) of 75% is also considered acceptable. Fisher has a large centralised development department which caries out all the design work before it passes the completed game to the sales and distribution department to market and distribute the product Fisher has developed a brand new game called Stealth and this has the following budgeted performance figures. The selling price of Stealth will be a constant £30 per game. Analysis of the costs show that at a volume of 10,000 units a total cost of £130,000 is expected. However at a volume of 14,000 units a total cost of £150,000 is expected. If volumes exceed 15,000 units the fixed costs will increase by 50%. Stealth's budgeted volumes are as follows: Year 2 16,000 units Year 3 Year 1 Sales volume 8,000 units 4,000 units In addition, marketing costs for Stealth will be £60,000 in year one and £40,000 in year two. Design and development costs are all incurred before the game is launched and has cost £300,000 for Stealth. These costs are written off to the income statement as incurred (ie before year 1 above).
Expert Solution
Check Mark
Knowledge Booster
Background pattern image
Management
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, management and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Text book image
Understanding Business
Management
ISBN:9781259929434
Author:William Nickels
Publisher:McGraw-Hill Education
Text book image
Management (14th Edition)
Management
ISBN:9780134527604
Author:Stephen P. Robbins, Mary A. Coulter
Publisher:PEARSON
Text book image
Spreadsheet Modeling & Decision Analysis: A Pract...
Management
ISBN:9781305947412
Author:Cliff Ragsdale
Publisher:Cengage Learning
Text book image
Management Information Systems: Managing The Digi...
Management
ISBN:9780135191798
Author:Kenneth C. Laudon, Jane P. Laudon
Publisher:PEARSON
Text book image
Business Essentials (12th Edition) (What's New in...
Management
ISBN:9780134728391
Author:Ronald J. Ebert, Ricky W. Griffin
Publisher:PEARSON
Text book image
Fundamentals of Management (10th Edition)
Management
ISBN:9780134237473
Author:Stephen P. Robbins, Mary A. Coulter, David A. De Cenzo
Publisher:PEARSON