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 $ 1,400. 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 develops this product? Why?