Target Costing
Utah Utensil has developed a new kitchen utensil. The firm has conducted significant market research and estimated the following pattern for sales of the new product:
|
Year
|
Expected Volume (units)
|
Expected Price per unit
|
|
1
|
48,000
|
19
|
|
2
|
48,000
|
20
|
|
3
|
90,000
|
16
|
|
4
|
40,000
|
12
|
If the firm desires to net $3.50 per unit in profit over the life of the product, and selling and administrative expenses are expected to average $50,000 per year, what is the target cost to produce the new utensil?