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t proposals as to future directions for the EzyGo production line have been put forward to the Board with details given below.
The first proposal suggests re-allocation of its manufacturing facilities to China to lower production costs, as a consumer survey conducted early this year revealed that EzyGo has yet proven to be popular among young consumers, despite its engaging user interface and brilliant apps, due to a high price tag currently at $800. This requires the closure of the existing factory in Western Australia established 5 years ago on the site owned by the company, which otherwise can be rented out today at $400,000 per year (future annual leases will grow in line with the inflation at 4% pa). Manufacturing equipment purchased at $2 million at the time, was expected to be fully written off after 10 years for tax purposes. The equipment’s current market value is $1.2 million while the company estimates it will remain capable of full scale production for another 10 years and get a salvage value of $200,000 in 10-year time. All the current facility (and inventory) can be transferred to the new location at a cost of $200,000 plus half of a month of revenue lost due to production interruption. Alternatively, new equipment can be purchased at $1.7 million. The estimated life of the new system is 10 years with salvage value expected to be around $400,000 but again it will be fully written off in the book. This option, however, requires an immediate increase in working capital of $100,000 so that the existing factory is kept operational 本Assignment由代写Assignment网www.51lunwen.org提供 during the transition period. Either way, extra investment may be necessary afterwards as the current company operating policy requires the total working capital is always kept at 10% of estimated sales. Besides, BC will need to make an additional payment of $1.5 million (including $1 million of redundancy pay-out to its current workers in Adelaide site, $0.5 million of training new workers). The lease contract for the new site can be negotiated at $200,000 per annum, adjusted annually for the local inflation rate of 7% pa and comes with an option to renew the contract after 10 years. It is expected that reduced labour and material costs will introduce a production savings worth of $50 per unit. If this entire saving is passed to consumers, it will help BC to regain 5.5% of the total market share each year in the next two years.
However, the Managing Director has become more convinced that BC should outsource the production of EzyGo mobiles from other manufacturers in Asia. This view has been initiated by new management direction which stresses leadership in innovation and product design. After some market research effort and another $10,000 spent on trying to find the best possible deals, he is very certain that outsourcing can bring down the selling price by as much as $30 per unit if BC wishes to maintain the same profit margin (excluding depreciation) of $100 per unit. This will translate to 5% improvement in the total market share of EzyGo after 1 year.
On the face of fierce competition, the research department of MM has been working on major upgrades to the EzyGo device as well as the BC interface software, with $0.5 million being spent over the last couple of years. These improvements would make EzyGo compatible with almost every personal computer on the market. To continue this research, it would need an immediate outlay of
• $ 200,000 to finish the d