Praeuner Company has surveyed the market and set a target selling price of $2,000 per unit for its product. Praeuner believes it can sell 100,000 units of this product over its two-year life. Praeuner requires a 20 percent return on selling price. Therefore its target cost per unit is $1,600. Praeuner has gathered the following budgeted cost data:
|
Unit cost
|
$ 1,200
|
|
Batch cost (batch size = 1,000)
|
15,000
|
|
Product-sustaining cost (annual)
|
480,000
|
|
Facility-sustaining cost (annual)
|
900,000
|
In addition to the previous costs, Praeuner will incur $5,000,000 in research and development costs before the product is manufactured.
Required:
-
- A. What is the total target cost for this product's life?
- B. What is the total budgeted cost for this product over its two-year life?
- C. Should Praeuner develop this product? Why?