Compute the life cycle target cost to manufacture the product. (Round to the nearest cent.)

NewMaid has designed a new consumer product, a floor cleaner and wax, that is expected to have a 5-year life cycle. Based on its market research, NewMaid’s management has deter-mined that the new product should be packaged in 32-ounce containers, with a selling price of $6 in the first three years and $4 during the last two years. Unit sales are expected to be as follows:

Year 1

300,000

Year 2

400,000

Year 3

600,000

Year 4

400,000

Year 5

250,000

Total

1,950,000

Variable selling costs are expected to be $1 per container throughout the product’s life. Annual fixed selling and administrative costs are estimated to be $500,000. NewMaid management desires a 25 percent profit margin on selling price.

Required:

a. Compute the life cycle target cost to manufacture the product. (Round to the nearest cent.)

b. If NewMaid anticipates the new product will cost $3 per unit to manufacture in the first year, what is the maximum that manufacturing cost can be in the following 4 years? (Round to the nearest cent.)

c. Suppose that NewMaid engineers determine that expected manufacturing cost per unit over the product life cycle is $2.25. What actions might the company take to reduce this cost?

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