John,
Your confusion is somewhat surprising.
First, I'm sure you understand that it costs a company more to develop 2 distinct products than 1; and more to develop 3 distinct products than 2, etc.
Second, during the development process there are costs which GAAP requires a company to recover during the expected product life. e.g. If the product life is expected to be 5 years, and equal numbers of units were sold in each of those years, and all process and product improvements were made on day 1, then, yes margins would be equal throughout the whole 5 year period.
But that's not reality. Fewer units are sold in the first year with the resulting higher costs being charged on a per unit basis. As volumes ramp, the fixed costs on a per unit basis reduce resulting in improved margins.
RE the perceived difficulty in Brian communicating this fundamental fact of business life to you, I'd have to ask a couple questions.
1. Are you, or have you ever been a CFO? Perhaps there's such a disparity in financial knowledge that there's a communications gap.
2. On a similar vein, is English your first language?
3. What beliefs do you hold which would cause you to ask these questions in the first place?
Surely you didn't think that multiple, diverse products could all be developed by the same research staff, the same facilities, the same skills and experience, the same resources as would be the case for a single product.
And after developing multiple products, did you believe they could be made in the same plant as for the single product. ... that that plant and its staff had infinite capacity.
And that the processes would be perfect from day 1 without any possibility whatsoever of being improved during the whole product life?
And that unit volumes would be at cyclical peaks starting from shift #1.
In other words, your confusion is rather perplexing. I had previously thought that you had a much better understanding of business and business processes.
FWIW,
Ian. |
