What contingency cost budget do you recommend for the product?

What contingency cost budget do you recommend for the product?

Contingency Allowance:

You are a project manager for the development of Motorola’s new 4G, HD,
Touch Screen Cell Phone which is supposed to take the cell phone industry
by storm. Listed below are the initial cost estimates for the materials and
labor for one of the phones:

ITEM

COST
ESTIMATE

TYPE
OF ESTIMATE

Case

$20.00

Order of Magnitude

Handset

$12.00

Definitive

Labor

$2.00

Definitive

Speaker

$2.50

Budget

Mouthpiece

$5.50

Budget

Antenna

$1.70

Definitive

Keypad

$3.00

Order of Magnitude

Circuit boards (handset)

$6.50

Budget

Circuit boards (base unit)

$8.50

Definitive

Battery

$1.20

Order of Magnitude

Charger

$16.00

Order of Magnitude

Total cost

$78.90

NA

The estimating department currently defines
estimate accuracy as follows:

Order of Magnitude

-25%, +85%

Budget

-10%, +25%

Definitive

-5%, +10%

(a) What contingency cost budget do you recommend for the product?
(b) The target retail price for the new telephone is $165.00 per unit. The
markup demanded by retailers is 50%. Based on cost factors, write a brief
rationale for acceptance or rejection of the project, including any
recommendations you have regarding the cost estimates

Price: £ 45

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