Pricing Strategy And Cost Calculation For RayHot | HWL Essay.

1. Based in the information contained in Table 1, explain what pricing strategy(ies) HWL will need to adopt for each year: 2019, 2020, or 2021, and why HWL should choose those selected pricing strategy(ies).

2. Calculate the target cost per unit of RayHot that HWL will need to achieve so it can meet the required profit margin of 20 percent on sales for 2019, 2020, and 2021.

3. Calculate the total cost per unit for 2019, 2020, and 2021. To calculate these yearly costs use the combined information in Table 2 and Table 3 plus averaging pre-product 2018 and post selling 2022 costs and adding the average costs across the costs for three years 2019, 2020, and 2021.

4. Compare your target costs per unit to the total cost per unit (requirements 2 and 3). Select the target costs RayHot should adopt in 2018 (before it starts production) to achieve a profit margin of (at least) 20 percent on sales in 2019, 2020 and 2021.

a. Select one of your target costs from requirement 2 and explain why this target cost should be selected before HWL starts producing RayHot in 2018 so that HWL can achieve so its required profit margin of 20 percent on sales (at least) in 2019, 2020 and 2021. 

b. Based on your answer in requirement 4a, what methods of evaluation (value engineering or reengineering) should be adopted to meet the required profit margin of 20 percent on sales (at least) in 2019, 2020 and 2021? 

c. Explain why you decided on the method of evaluation selected in requirement 4b;use calculations to support your decision 

Explaining the pricing strategy for HWL

The relevant declining pricing strategy is mainly used by the organisation, as the popularity of the solar panels is relatively going to diminishing in three years. Hence, the organisation could adequately choose the depicted prices of the units produced, as it might help in identifying the overall viability of the project (Armstrong 2014).

Calculating target cost per unit
Year	Sales forecast	Proposed selling price	Cost per unit	Profit margin
2019	12000	$                      1,000	800	20.00%
2020	17000	$                         800	640	20.00%
2021	6000	$                         750	600	20.00%

Total cost	Per unit of hot water
Direct material	$                           250
Direct labour	$                           125
Manufacturing overhead	$                           125
Total manufacturing cost	$                           500

Particulars	2019	2020	2021
Revenue	$               12,000,000	$             13,600,000	$       4,500,000
Direct material	$                 3,000,000	$               4,250,000	$       1,500,000
Direct labour	$                 1,500,000	$               2,125,000	$          750,000
Manufacturing overhead	$                 1,500,000	$               2,125,000	$          750,000
Operating income	$                 6,000,000	$               5,100,000	$       1,500,000
Research and Development	500,000	500,000	500,000
Product and Process Design	1,233,333	1,233,333	1,233,333
Marketing	900,000	900,000	900,000
Supplier training	145,000	145,000	145,000
Customer Support	433,333	433,333	433,333
Total cash flow	2,788,333	1,888,333	(1,711,667)
cost per unit	767.64	688.92	1,035.28

Target cost
Particulars	2019	2020	2021
Cost per unit	$                           800	$                         640	$                 600
Total cost per unit
Particulars	2019	2020	2021
Cost per unit	$                           768	$                         689	$              1,035

From the relevant evaluation the overhead cost could be taken into consideration for the target costs, which could directly allow the organisation to achieve 20% profitability from operations.

The overall evaluation mainly helps in depicting that value engineering method needs to be conducted for achieving the margin of 20%. Moreover, the value engineering part directly indicates that overhead expenses that is incurred by the organisation needs to be evaluated to determine the actual profitability from operations.

Value engineering method could eventually reduce the expenses of overhead costs, which is directly incurred from operations. Moreover, the adequate reduction in could directly return the total expense incurred from operations as depicted in the below table from 2018 to 2022.

Particulars	2018	2019	2020	2021	2022
Cost of expenses		$               9,600,000	$     10,880,000	$     3,600,000
Research and Development	1,500,000
Product and Process Design	3,000,000
Marketing	1,000,000
Supplier training	100,000
Customer Support					100,000
Total cash flow	(5,600,000)	2,400,000	2,720,000	900,000	(100,000)

Total cost	Per unit of hot water
Direct material	$                           250
Direct labour	$                           125
Manufacturing overhead	$                           125
Total manufacturing cost	$                           500

Forecasted sales
Year	Sales forecast	Proposed selling price
2019	12000	$                         1,000
2020	17000	$                            800
2021	6000	$                            750

Particulars	2018	2019	2020	2021	2022
Revenue		$ 12,000,000	$13,600,000	$ 4,500,000
Direct material		$ 3,000,000	$ 4,250,000	$ 1,500,000
Direct labour		$ 1,500,000	$ 2,125,000	$ 750,000
Manufacturing overhead		$ 1,500,000	$ 2,125,000	$ 750,000
Operating income		$ 6,000,000	$ 5,100,000	$ 1,500,000
Research and Development	1,500,000
Product and Process Design	3,000,000	700,000
Marketing	1,000,000	800,000	500,000	400,000
Supplier training	100,000	175,000	105,000	55,000
Customer Support		250,000	600,000	350,000	100,000
Total cash flow	(5,600,000)	4,075,000	3,895,000	695,000	(100,000)

Particulars	2018	2019	2020	2021	2022
Revenue		$             12,000,000	$     13,600,000	$     4,500,000
Cost of expenses		$               9,600,000	$     10,880,000	$     3,600,000
Total cash flow		2,400,000	2,720,000	900,000
Research and Development	1,500,000
Product and Process Design	3,000,000
Marketing	1,000,000
Supplier training	100,000
Customer Support					100,000
Total cash flow	(5,600,000)	2,400,000	2,720,000	900,000	(100,000)

Total cost
Particulars	2018	2019	2020	2021	2022
Total cash flow	(5,600,000)	4,075,000	3,895,000	695,000	(100,000)
Discounting rate	1	0.92593	0.85734	0.79383	0.73503
Discounted cash flow	(5,600,000)	3,773,165	3,339,339	551,712	(73,503)
NPV	1,990,713
Target cost
Particulars	2018	2019	2020	2021	2022
Total cash flow	(5,600,000)	2,400,000	2,720,000	900,000	(100,000)
Discounting rate	1	0.92593	0.85734	0.79383	0.73503
Discounted cash flow	(5,600,000)	2,222,232	2,331,965	714,447	(73,503)
NPV	(404,859)

From the overall evaluation of the NPV the total cost expense is relatively adequate, as it is providing a positive NPV valuation. However, the target cost method is directly increasing the overall costs and forcing the NPV to be negative, which directly indicates that the product is not viable. Hence, it could be stated that total cost method is a viable approach for generating higher revenue from investment (DRURY 2013). 

From the relevant evaluation of the case study it could be identified that Different teams are not supporting each other in lieu of relevant benefits that could be provided in form of incentives.  They are all $30,000 incentive is directly forcing the things to sabotage each other overall work so that they are not able to perform in their 100%. From the evaluation of complaints provided from different team it could be identified that Team Scuba Assembly is facing the maximum challenge for improving is performance, as a relevant sabotage is being conducted (Christ and Burritt 2013). Moreover, the case study also helps him depicting that only 4 team were introduced with the new incentive scheme, why the supporting things that will provide irrelevant materials and on the old scheme. This is mainly not forcing the overall production line to reduce the cost incurred from operation and help the 4 teams to perform adequately. Lastly, well control system also increasing rage and unhealthy competition among the employees, which could result in negative productivity and might hamper operations of the organisation.

Calculating the target cost per unit of RayHot

The evaluation of the case study also indicates that overall team-based for saving performance measure is not adequate to measure relevant performance in awarding bonus to employees. This directly indicates that a current use of team-based cost saving measures is relatively not providing the maximum saving performance that could be provided by the company. Hence,  accompany could use different cost saving measures such as activity based management (ABM), and Labour input, which could allow appropriate recognition method for activities conducted by the teams and  provide relevant price to the winner. Furthermore, the current situation only one team is getting all the relevant benefits while that use exempted from the benefits (Contrafatto and Burns 2013).

After seeing the relevant discussion regarding activity based management (ABM) is been conducted, which could help in detecting the actual value of the organisation. The case study mainly indicates that adequate performance measure incentive scheme needs to be implemented by the organisation for increasing performance and conducting cost saving measures. The incentive scheme is directly proportional to the overall cost savings that is conducted by the organisation from its production facility. Therefore, activity based management (ABM) could directly allow the organisation to detect the overall activities that is conducted by a particular team of process. This relevant detection of the activities could eventually help in deciding whether the team has reduced the overall expenses incurred from production. Procurement ROI is also identified as one of the adequate measure for calculating the overall savings that is conducted on expenses (Fullerton, Kennedy and Widener 2013). However, the use of activity based management system could provide detection for both relevant cost features and incentives that needs to be provided to the Employees. Therefore, the organisation could implement activity based management system and its operations for reducing the overall cost and improving profitability.

The newly design performance measurement system could eventually accommodate Activity based management, which could help in detecting performance of the employees. The enterprise strategy level is mainly focused in sustainable measures that need to be used within the organisation, where adequate CSR activities need to be adopted. For example, using of adequate CSR activities could eventually allow the organisation to support sustainable production facility in their Enterprise. The relevant corporate level strategy needs to be adopted by the organisation where value neutral strategy needs to be maintained. For example, value neutral strategy directly forces the organisation on allocating resources and manpower, which is essential to reduce costing and adequately attain sustainability (Goetsch and Davis 2014). The third strategy that needs to be adopted is utilising human resource, which is essential for the Business level strategy. For example improving the overall human resource might help in declining the expenses and improving productivity of the firm. Lastly, the strategy used for functional strategy level is Operational strategy, which could directly help him evaluating the day to day routine of the organisation. For example, using operational strategy could eventually help in evaluating the activities of Production that is been conducted by the company.

Calculating the total cost per unit for 2019, 2020, and 2021

Depicting the relevant drivers and benefits to the environment sustainability, which could help in creating a shared vision and embed adequate sustainability culture in ATL:

The use of strategic proactive phase of sustainability could be conducted with relevant drivers and benefits to the environment sustainability. The adequate use of sustainability strategies within the cell value chain could directly help in reducing the expenditure and improving production sustainability of the organisation. There are relevant drivers of environmental sustainability that could be provided to the company, which comprises of financial drivers (Hiebl 2014). These financial drivers could eventually help in providing business opportunities for the company as adequate Government support will be provided due to use of environmental sustainability measures. The financial driver would eventually help in benefiting the marketing sector of the company and generate more orders from the customers. Therefore, the portraying of a sustainable environmental workplace could eventually have a social impact, which could generate the relevant revenue to support future activities of the organisation.

There are some benefits that could be provided from the use of environmental sustainability, which are cost savings increase competitiveness, creation of business opportunities, improved marketing, learning opportunities, and enhanced staff and improved branding. These benefits could eventually help in improving profitability of the organisation and generate relevant returns (Hill, Jones and Schilling 2014).

Depicting the modifications that is needed for the new performance evaluation and reward scheme, which could help in involving Strategy, Vision and Organisational Culture:

The implementation of the proposed reward system in Malaysian societal values could negatively impact the productivity of your organisation. Moreover, certain modification could directly help in limiting the negative impact of the current reward system. The relevant appendix A directly indicates comparison between two societal values, which could help in designing or modifying the current reward system. Therefore, it could be identified that Malaysia is considered booming industrial place, where incentive scheme needs to be adjusted according to the society values. The overall incentive needs to be calculated based on the output provided by employees, which might help in increasing productivity and reduced cost. Hence, relevant adjustments in the incentive scheme and performance evaluation scheme needs to be conducted for Malaysia branch (Lachmann, Knauer and Trapp 2013).           

Explaining the relevant modifications that need to be implemented to the efficiency phase and strategic proactive phase, while depicting how difference in some societal values for Australia and Malaysia could have impact on the business:

Selecting target cost for achieving 20% profit margin

From the valuation it could be understood that PDI is relatively high in Malaysia as compared to Australia. Moreover, IDV is high in Australia rather than Malaysia, where MAS is also relatively lower in Malaysia.  in addition  Malaysia has lower UAI and LTO then Australia, which makes it an ideal business culture. These identified societal values mean indicates that Malaysia has a different well you regarding Industries as compared to Australia. Hence, the changes in the incentive scheme could directly help in increasing productivity and reducing cost structure. This could eventually help in supporting the company's overall rising expenses and increasing profitability. These modifications would eventually help the company to rise from the efficiency phase to strategic proactive phase (Pondeville, Swaen and De Rongé 2013).

Providing relevant suggestions in developing a sustainability culture for employees and value chain stakeholders in Malaysia compared to Australia to overcome these differences:

Malaysia as compared to Australia has higher competition among employees and are able to adopt changing requirements of the business. The relevant development for sustainability culture for employees and value chain stakeholders can only be obtained by providing higher returns on incentives. According to the societal values of a Malaysia changes in monetary benefits could eventually help in improving the sustainability factor for both employees and value stakeholders.  The relevant reduction in cost could eventually help in increasing profits for the value stakeholders and the achievement for the reduction could allow employees get relevant incentives. This process could directly allow the Malaysian unit to increase the productivity and comply with the societal values currently engulfing the country (Rothaermel 2015). 

Calculating the electricity cost to the business associated with the heating of water used to 70 degree:

Particulars	Value
Time	45
litres per minute	12
Total litres per day	540
Yearly litres	135,000
Total days	250
Total litres per day	540
Cost of 1 kilo litres for heating	82
Total kWh for heating	44.28
electricity cost per kWh	0.155
Total cost per day	6.86
Total cost per year under 70 degree	$ 1,715.85

Calculating the dollar saving if this lower temperature is used by the business:

Particulars	Value
Time	45
litres per minute	12
Total litres per day	540
Yearly litres	135,000
Total days	250
Total litres per day	540
Cost of 1 kilo litre for heating	64
Total kWh for heating	34.56
electricity cost per kWh	0.155
Total cost per day	5.36
Total cost per year under 60 degree	$ 1,339.20
Total cost per year under 70 degree	$ 1,715.85
Total savings	$ 376.65

Calculating the electricity cost if the reduced water flow was heated under 70 degrees and 60 degrees:

1. i) Under 70 degrees:

Particulars	Value
Time	45
litres per minute	6
Total litres per day	270
Yearly litres	67,500
Total days	250
Total litres per day	270
Cost of 1 kilo litres for heating	82
Total kWh for heating	22.14
electricity cost per kWh	0.155
Total cost per day	3.43
Total cost per year under 70 degree	$  857.93

Under 60 degree:

Particulars	Value
Time	45
litres per minute	6
Total litres per day	270
Yearly litres	67,500
Total days	250
Total litres per day	270
Cost of 1 kilo litre for heating	64
Total kWh for heating	17.28
electricity cost per kWh	0.155
Total cost per day	2.68
Total cost per year under 60 degree	$ 669.60

Calculating the energy cost savings by reducing the water flow without reducing the water temperature and reducing the temperature without reducing the water flow:

i) Reducing the water flow without reducing the water temperature:

Particulars	Value
Time	45
litres per minute	6
Total litres per day	270
Yearly litres	67,500
Total days	250
Total litres per day	270
Cost of 1 kilo litres for heating	82
Total kWh for heating	22.14
electricity cost per kWh	0.155
Total cost per day	3.43
Total cost per year under 70 degree	$  857.93

Reducing the temperature without reducing the water flow:

Particulars	Value
Time	45
litres per minute	12
Total litres per day	540
Yearly litres	135,000
Total days	250
Total litres per day	540
Cost of 1 kilo litre for heating	64
Total kWh for heating	34.56
electricity cost per kWh	0.155
Total cost per day	5.36
Total cost per year under 60 degree	$ 1,339.20
Total cost per year under 70 degree	$  857.93
Total savings	$ 481.28

Calculate the annual lighting cost for the QPT using the following formula:

Particulars	Value
Lights	20
kWh	0.08
$kWh	0.155
Hrs	16
Days	365
Total annual lightings expense	1448.32

Depicting the savings in electricity by using energy-efficient lights:

Particulars	Value
Lights	20
kWh	0.02
$kWh	0.155
Hrs	16
Days	365
Total annual lightings expense	362.08

Providing relevant recommendation with NPV analysis, which could help in identifying relevant viability of the project:

Email ID: Managing director Subject: Recommendations for the expenses conducted for the project Sir, Relevant valuation has been conducted to identify the adequate low costing method, which could be used by the organisation for reducing the total cost. Hence, the use of 20 wattage bulbs, low pressure water and heating temperature of 60 degree could eventually allow the organisation to incur the least expense annual. The minimum amount of water is needed by the organisation, where 6 litres per minute would suffice with a 60 degree heating measure. Therefore, the expenses from heating the water are $669.60 and reduced wattage from bulbs is $362.08. Moreover, this could eventually help in identifying the relevant cost of capital and detect the overall NPV analysis. Thank you

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