Worksheet - What's So Important About Design?
This is an extension worksheet that you might like to try so that you
understand both design and costs better. You could come back to it and try it
again once you have looked at pricing in the Marketing section.
Step 1 - Featuring in the design is ...................?
The design theories section of the factory
outlines some of the features that are vital if a design is to become a
successful product. What are they?
Now think carefully about what each of these means, and how important they may
be in the design of a hot-air balloon. Try ranking them according to their
importance, starting with the most important as number 1.
Justify the first four features in the ranking. Why do you think these are the
most important? (N.B. Think of it from the customer's point of view as well.)
Step 2 - Designer balloon means designer prices?
What would the design costs of a balloon be classified as? What sort of
costs?
Clearly for a standard balloon, it only needs to be designed once! Also the
design time is likely to be less than for a complex special balloon. Let's say
that the design of a standard envelope costs £20,000 in design time, computing
costs and testing. Fill in the table below to show what happens to that design
cost as the number of balloons produced increases:
TOTAL
DESIGN COST | NO. OF
BALLOONS
PRODUCED | AVERAGE DESIGN COST
i.e. design cost per
balloon |
|---|
£20,000 | 5 | |
£20,000 | 10 | |
£20,000 | 15 | |
£20,000 | 20 | |
£20,000 | 25 | |
£20,000 | 30 | |
Plot the figures you calculated in the last column on a graph which has
"Output" as the x-axis and "Cost per unit (£)" as the
y-axis.
What will this mean for Cameron Balloons pricing policy for these
balloons?
However, a special shape balloon is a unique product. Rarely is more than one
of the same design made. Combine this with the fact that the design costs will
tend to be much higher, and you can see that designer balloons probably does mean
designer prices.
Look up the different methods of pricing in the Paperless School.
Which of the methods (or combination of methods) below would be most appropriate to the
pricing of special shape balloons? Give reasons for your answer.
- Absorption costing
- Cost-plus pricing
- Contribution pricing
- Competition-based pricing
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