Design and launch of a new product or service

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Costs
Option 1
Your team has been assigned to design and launch of a new product or service. This could be an external product for sale or an internal service to support other departments. As you prepare for your first team meeting, you know that identifying and classifying costs will be an essential part of the project.
• Briefly explain what the new offering is (NOTE: this can be hypothetical or based on your current role at your company; you should not share any proprietary information)
• Identify and describe one fixed cost and one variable cost in your department, and explain whether they are controllable or non-controllable.
• Identify whether these costs are traceable to direct materials, direct labor, or overhead.
– OR –
Option 2
Consider your current organization, describe how costing is used or could be used to better understand the financial breakdown of products and/or services delivered. Would this information support you in your current role and/or aspired-to role? Have you seen instances where costing is not used effectively or could be better leveraged?

 

Sample Solution

New Offering: Plant Care Mobile App

Our team will develop a mobile application that provides personalized plant care advice. Users will input plant species, environmental conditions, and potential issues, and the app will offer tailored care recommendations, including watering schedules, fertilization, pest control, and troubleshooting.

Fixed and Variable Costs

  • Fixed Cost: Office rent. This is a fixed cost as it remains constant regardless of the number of app downloads or revenue generated. It’s considered non-controllable in the short term, as the lease agreement is a long-term commitment.
  • Variable Cost: App development costs. This is a variable cost as it fluctuates based on the number of developers, hours worked, and external resources utilized. It is controllable through efficient project management and resource allocation.

Both direct materials (e.g., software licenses, hardware) and direct labor (developer salaries) contribute to app development costs. However, office rent is classified as overhead as it supports general operations rather than being directly tied to the app’s creation.

By carefully analyzing and managing both fixed and variable costs, we can optimize the app’s profitability and ensure its financial viability.

 

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