Research and development is a crucial part of the entire budget, where the company focuses on its new markets and aim at the development of new products and services. From the above illustrations we can understand the relationship between the cost and profit, where revenues decrease and therefore reducing the cost and profit respectively. There is a direct relationship between the cost and volume or units produced (Sprinkle, Sivaramakrishnan, Balakrishnan 2008).
Product discontinuation could be a wise strategy to reduce costs and bring up more sales from new offerings. For instance, consider the X6 PDA vis-à-vis Iphone 3GS or Samsung galaxy with Android, what could be the best purchase decision when it comes to the most featured and advanced technological Smartphone? Certainly the Iphone 3GS, because Iphone provides what X5 can’t with almost no difference in prices, so product discontinuation would be advised for X5 PDA. If we common size the income statement of Palm Inc for all 4 years the percentage allocation to R&D of its revenues is 8.63, 12.23, 15.37 and 24.08 percent from 2006 to 2009 respectively. The investments in research show an upward trend with respect to revenues, yet not very effective in maximizing sales and production. However, in 2009 the investments in R&D were lower standing at around $177.2 million than that of 2007 when it was over $190 million. Pricing is another key factor for profit maximization and cost reduction. Price plays crucial role in identifying the most receptive segment of the market. We will take some examples of Palm’s PDAs to propose a strategy for pricing with the help of cost volume profit analysis (CVPA).
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