Re: Looper development and production costs?

["Tom Ritchford" <tom@swirly.com>]

Have to love this sort of analysis.

 
> If $2 million was spent on R&D, including the labor and materials for
> development, testing, market analysis, etc... everything that R&D 
>implies,
> these $s can be put on the balance sheet and amortized over 5-7 years.
> Let's use 5 years for conservatism.  That's $400k per year of amortized
> (non-cash) expense.

I think that 5 years might be a bit long.  How many
pieces of gear are still in production after 5 years?

$2 mill is pretty reasonable, it might cost more...
since the Repeater was a year over schedule, it'd
pretty well HAVE to cost more!

> Let's say that following the R&D effort, the organization had an ongoing
> overhead cost of $1M per year.  That's just for executives,
sales/marketing,
> haircuts, etc.

Also quite reasonable.

> 
> Let's say that the ongoing cost of production is $150 per unit.  That
> includes materials, labor, equipment depreciation, any licensing
costs, etc.
> "Cost of goods sold", as the beanheads call it.  Let's also say that this
> $150 per unit figure assumes that 2000 units are produced and sold every
> year.

2000 units.  Hmm.


> $400,000 R&D Amort.
> $1,000,000 Overhead
> = $1.4M general expenses annually
> divded by 2000 units
> = $700 per unit of overhead costs
> + $150 per unit mfg costs
> = $850 per unit total costs
> 
> If the company wants to earn a 15% return, they'd need to charge
$1,000 per
> unit

your math is a little wrong on that last step:  $150 on 
$850 is close to 20%...


> Is this even close?  How do other complex pieces of audio hardware get
> developed and sold for less?  


This seems to put the kibosh on that "2000 unit" number.

Since the overhead costs are fixed and not per unit,
if you managed to sell as many as 10,000 units, it'd go:

= $1.4M general expenses annually
divided by 10000 units
= $140 per unit of overhead costs
+ $150 per unit mfg costs
= $290 per unit total costs
+15% < $440

rather like the Repeater.

Of course, we know that Electrix has dumped their remaining
product line and concentrated on the Repeater so that
they don't get a chance to spread the general costs
out over any other product...

Gibson clearly does, however!

    /t


-- 

I am the wombat.