Gourmet Grade has just completed its work on a new microwave entre. After consumer research was conducted,

Gourmet Grade has just completed its work on a new microwave entrée. After consumer research was conducted, the marketing group has estimated the following quantities of the product can be sold at the following prices over its life cycle:

Initial engineering estimates of direct material and direct labor costs are $1.70 and $0.40, respectively, per unit. Variable overhead per unit is expected to be $0.50, and fixed overhead is expected to be $200,000 per year. Gourmet Grade's management strives to earn a 25 percent gross margin on products of this type.
a. Estimate the target cost for the new entrée.
b. Compare the estimated production cost to the target cost. Discuss this comparison and how management might use the comparison to manage costs.
c. Based on your answer in (b), should Gourmet Grade begin production of the new entrée?Explain.

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Year Quantity Seg Price Ya Quntity Selling Price 100,000 250,000 350,000 500,000 $2.50 2.40 2.30 2.10 $2.00 2.00 1.90 1.90 5 600,000 450,000 200,000 130,000 8