CVP Analysis Paper Research Example | Topics and Well Written Essays - 1500 words

CVP Analysis - Research Paper Example In order to bring a revolution in the existing business practices of the company, it is important that a new pricing strategy is devised that is based on the strategic objectives of each product individually. Furthermore, the decisions for the allocation of funds for the Research & Development (R&D) of each product should be taken individually and on annual basis to achieve the desired objectives of the product and the company. However, my strategic decision making for each year has resulted into 60% profitability in case of product X5 and 50% profitability in case of product X6. Furthermore, the increased spending on maintenance, support, enhancement and discovery for product X5 and X6 showed improved product which resulted in higher customer satisfaction. Furthermore, the discontinuation of product X7 through the four years helped in the success of the first two products. Nonetheless, a new strategy needs to be determined using contemporary strategy determining tools like Cost-Volu me-Profit (CVP) analysis. 1.1 Aim The aim of this report is to discuss the new pricing and R&D allocation strategy for the core products X5, X6 and X7 using CVP analysis and calculator. 1.2 Objectives To analyse the subsequent performance and life cycles of each product due to the difference in the decisions. To determine the new pricing decisions and R&D budget allocation strategy for each core product, namely: X5, X6 and X7 taken in 4 years (i.e. from 2012-2015). To provide rationale of the proposed strategy with theoretical support. 2 Analysis of Pricing and R&D Allocation Strategy Used in Phase 2 2.1 Penetration Pricing Strategy In order to enter into the established marketplace, Tablet Development Corp. has to undertake the penetration pricing strategy. A penetration pricing strategy is used when the company has to enter into an established marketplace and to attract the market in a substantial manner through low-pricing techniques. In the year 2012, the price of product X5 was set at the lowest possible price of $180 and it was increased by $5 every year. Similarly, the price of X6 was set at $300 only and was increased by $10 each year. The product X7 was discontinued in four years. 2.2 R&D Budget Allocation Strategy Strategic distribution of the R&D budget over the years is key to the success. Therefore, only first two R&D activities require substantial investments whereas the last two requires little investment to keep it going. The R&D budget allocation was increased for product X5 and X6 in the subsequent years whereas, product X7 was allocated less percentage of the R&D budget. The less amount shows the R&D allocations for the maintenance of product X7. 3 Determining New Strategy for Core Products of Tablet Development Corporation Apple Inc. and Microsoft have been involved in developing new products on a regular basis. In this wake they incurred fixed costs related to R&D expenditures and other costs of new product development. In order to remain competitive in the global marketplace, they adopted a new method to determine the prices and R&D allocations for multiple products on a unit cost basis (Morse, 2003). They assumed that the costs of all the products will remain fixed and thus, determine a profit or a loss situation for the new product. The