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Chapter 4

Q. 4.2

SkiVite is in the process of designing and engineering a new snow ski especially suited for alpine conditions. Although the current design is acceptable, SkiVite is considering further design and engineering efforts that would cost the company €100,000. The engineering manager estimates that the improved design and engineering would reduce the cost of making a pair of skis by €11. SkiVite expects to make and sell 10,000 pairs of this new ski in the coming year. Should SkiVite spend the €100,000 to improve the design of the ski?


Verified Solution

Spending €100,000 in the design stage will save (€11/pair × 10,000 pairs), or €110,000 in the production stage in the coming year. If production continues beyond the coming year, even greater production savings will occur. Therefore, the extra spending on designing and engineering benefits SkiVite.