Assignment
Galley Appliances manufactures small kitchen appliances for consumer use. Its products are sold to large department stores across the country.
The company wants to enter the coffeemaker market and is in the final stages of designing and producing a one-cup coffeemaker called the Java-Pro, which uses pre-packaged one-cup coffee packets. The design team, which consists of marketing, product engineering, operational and financial staff, has determined that 20,000 units of the Java-Pro will be sold annually over the next eight years. At that time, the company plans to design and manufacture a newer product to compete in the coffeemaker market.
Variable costs to produce the Java-Pro are as follows: Java-Pro costs Per unit Direct materials cost $13.75 Direct labour cost 6.75 Variable overhead cost 8.10 Variable SG&A 5.00 Total variable cost $33.60 Annual fixed manufacturing overhead is expected to be $200,000, and fixed selling and administrative expenses are set at $150,000. As Galley is committed to quality, the company plans to spend $150,000 in quality costs for the first year of operations and will then scale down to $50,000 per year for the remainder of the life of the product. Product development costs are $1,500,000. What will the selling price be if Galley's marketing team expects to set the price at 23% markup on the full life-cycle cost?
Round your answer to the nearest cent.
a) $59.39
b) $66.70
c) $75.54
d) $78.23.