After Two Years of Selling Mostly Prototypes of Their Product

Multiple Choice

After two years of selling mostly prototypes of their product, built to customer specifications, a company is beginning to commercialize this product. The current average cost to build the product is $1000 per unit, where $600 is the bill of materials and $400 id the direct labor. The company currently produces at the run rate of the 100 good units per week from 200 total units processed. The firm currently sells the product at $1500 per unit, without volume discounts. One of the major pressures from their customers is to cut costs by 40% within one year. Which of the following strategies should the firm pursue first based on the following research data ? Please assume there is infinite customer demand.

A) Acquiring a company overseas in order to manufacture the product, which would reduce costs by 75% in Year 1 (5% probability of the success )
B) Developing a turnkey operation that reduces costs by 65% in Year 1 (30% probability of the success )
C) Participate in a joint venture for new R&D that would help reduce costs by 50% by improving yields in Year 1 (20% probability of success )
D) Licensing out the technology to a corporation in another country that would reduce costs by 55% in Year 1 (15% probability of success )