Cost increases imposed by design changes introducedat

Chapter 6, Problem 6.40

(choose chapter or problem)

Cost increases imposed by design changes introducedat different times during advancing stages ofthe product life cycle (PLC) usually rise dramaticallyas the change is introduced later in the lifecycle of the product. Though the numbers varyfrom one industry to another, one cost-increase model looks something like the following:PLC Stage Cost Multiplier Example, $Conceptual 1 100Production planning 3 300Prototype/testing 5 500Manufacturing (per unit) 550 5005000Sales and after-sales 20100 200010,000Hamound Industries designed, developed, and isnow manufacturing for sales an improved version ofits model GR1 smoke detector system that can beused on high speed trains, such as the TGV (Train Grande Vitesse in French). The original estimates,developed during the conceptual design stage, areshown below. During the testing stage, a major safetyflaw was discovered and significant design changeswere made, affecting only the equipment first costestimate, fortunately. Now, during manufacturing, asignificant problem has emerged that makes theinternet-connectivity feature difficult to manufacturewith the level of required reliability. This change willincrease the manufacturing cost per unit by a factorof 5. The initial economic analysis, conducted duringthe conceptual stage, using the AW value at i = 7%per year, showed very promising results. However,the design changes have affected this positive analysis.Use the original estimates and the PLC cost multiplierssummarized above to perform AW analysesfor the four stages from conceptual through manufacturingto determine what has happened to the economicviability of the improved product.Equipment original first cost P, $ 6,000,000Equipment AOC, $ per year 300,000Manufacturing cost, $ per unit 2.75Revenue, $ per unit 12.75Number of units per year 500,000Life, years 10Salvage value, $ Constant at10%