Question

you are the engineering manager of a small business that is about to launch sales of solar powered sunglasses with a built in Bluetooth headset. The annualy. lhe projit on each unit is $32. your only competitor, Ihe Hlppa Today, you were informed by your quality assurance manager that the electronics in sunglasses may overieat when operated at temperatures above 30 [c]. The overheating may cause severe burns or sínge the hair of the user and the potentíal for lawsuits exists. The design can be modified, but it adds an additional sı9 to the cost of the sunglasses. There are 23,000 units atready in productíon; the cost to reworR these units is s37 each. A warning label can be affixed to the sunglasses for $4 per unit. Perform a cost analysís of each possible "solution', decide what you would do, and justífy your decísíon?

Answer 1

Please find below screenshots highlighting the three possible solution-

Wholesale price Profit/unit Total cost Expected sales Units in production Per unit cost of design change Cost of rework/unit Cost of warning label/unit 280 32 248 150000 23000 19 37 4 units units 10 Solution A- Change design of units under production and produce remaining units with new desigrn 12 Additional cost of rework on units under production 13 Additional cost of production of remaining units with new design 2413000 14 Total impact on profit 15 16 17 Solution B- Do not change the design and attach warning labels 18 19 Impact on profit 20 21 Solution C-Attach warning labels on units under production and alter design for the remaining products 851000 3264000S Assuming wholesale price remain the same 600000S 23 Additional cost of labels 24 Additional cost of production of remaining units with new design 25 Total impact on profit 92000 S 2413000 $ 2505000S

Wholesale price 280 Profit/unit 32 Total cost E1-E2 Expected sales 150000 units Units in production 23000 units Per unit cost of design change 19 Cost of rework/unit 37 Cost of warning label/unit 4 10 Solution A- Change c 12 Additional cost of rework on units under production 13 Additional cost of production of remaining units with new design 14 Total impact on profit 15 16 17 Solution B-Do not ch (E4-ES) E6 -F13+F12 Assuming wholesale 19 Impact on profit 20 21 Solution C- Attach w -E8 E4 23 Additional cost of labels 24 Additional cost of production of remaining units with new design 25 Total impact on profit -E6(E4-ES) -F24 F23

Though we see that the cost impact is least in option 2 but then again in real world things do not operate like that. If they just put warning labels then it might impact the image of the company and it might impact the sales of the company in the longer run. Hence it is not advisable.

To give its customer's the best experience it is advisable to give them the best design and hence option A is the best option.