Target costing
The marketing department at Cleveland Furniture Mfg. has an idea for a new product that is expected to have a six-year life cycle. After conducting market research, the company found that
the product could sell for $800 per unit in the first four years of life and for $650 per unit for the last two years. Unit sales are expected to be as follows:
Year 1 3,680
Year 2 3,312
Year 3 4,324
Year 4 4,600
Year 5 1,380
Year 6 920
Per-unit variable selling costs are estimated at $140 throughout the product's life; total fixed selling and administrative costs over the six years are expected to be $3,700.000. Cleveland
Furniture Mfg. desires a profit margin of.15 percent of selling price per unit.
a. Compute the life cycle target cost to manufacture the product. (Round to the nearest cent.)
Note: Round your answer to two decimal places (i.e., round $2.4555 to $2.46).
$\text{0}$ per unit
b. If the company expects the product to cost $430 to manufacture in the first year, what is the upper bound for manufacturing cost in the following five years?
Note: Round your answer to two decimal places (i.e., round $2.4555 to $2.46).
$\text{0}$ per unit
