Sobeit Company Ltd  DataMe Device Case Study

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Question – On 2 January 2020, Roger Someone organized Sobeit Company Ltd to manufacture and sell a device called DataMe that he has designed for use as an attachment on personal computers to improve connectivity and retain data. The device is pocket sized and comes in 6 different colours. Shortly after the end of the first quarter, Roger’s accountant had a serious accident and therefore has been unable to prepare financial statements for the quarter. In order to have information on which to base a decision as to whether or not the company should be continued, Roger has prepared the following statement detailing results for the first quarter’s activities. 

Sobeit Company Ltd For the quarter ended March 31, 2020. 

Sales 700,000 Less Operating Expenses Utilities 30,000 Advertising 100,000 Direct Labour Cost 160,000 Indirect Labour Cost 45,000 Raw Materials purchased 130,000 Maintenance Cost, factory 9,000 Indirect Materials 16,000 Depreciation (wear and tear) factory equipment 30,000 Rent on warehouse 60,000 Sales Salaries 50,000 Other factory overhead costs 35,000 Administrative Salaries 70,000 Total operating expenses 735,000 Net Loss ($35,000) Roger is very disappointed in the results of the first quarter and feels that he should discontinue operations and sell his patents to another company. To add to his troubles, just after the quarter had ended, the company’s finished goods warehouse was broken into by thieves who took all of the unsold units on hand. The company’s insurance policy states that the company will be reimbursed for the “cost” of any finished units destroyed or stolen. Roger figures that this is $73.50 per unit, computed as follows: 

Total Expenses for the quarter $735,000  Units produced during the quarter 10,000 = $73.50 per unit 

Required:

a. What is the actual cost of manufacturing the finished goods for the quarter? 

b. Determine the cost of the 2000 units in the finished goods inventory at March 31. 

c. Do you agree that the insurance company owes Roger $147,000 as indicated above? Explain your answer? d. Calculate what you think Roger’s operating result for the quarter should be. Based on your calculations, should Roger discontinue operations? (Assume the warehouse was broken into after the quarter ended; thus no loss for the theft should be included in your calculations). 7 marks e. Roger is also seeking advice as to what pricing policy he should adopt for the DataMe device. He wants to make a gross margin on each device of 80%. At the moment there is only one similar device on the market which sells for $220. It has similar features to DataMe but only comes in one colour — black. 

(i) Advise Roger about two pricing policies he might consider and recommend the price he might set under each policy giving reasons for your recommendation. 

(ii) Discuss four other factors that may influence the setting of the price for the DataMe product that Roger might consider.

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• Posted on : January 05th, 2020

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