Ache-No-More Company makes specialty chairs designed to take stress off of the lower back, reducing the tendency to get backaches from sitting too long. The chairs are very high-end, ranging from $1,395 for its least expensive product to $2,595 for its most expensive product. The company is thinking about entering the desk chair market. This is a highly competitive market, but Ache-No More feels its reputation for stress less comfort will allow it to enter the market at the high end successfully.

Alice Green, V P of market development, is tasked with putting together the information for the new product. Ache-No-More plans to launch the product at a price of $1,400, well above the cost for the typical chair. Offered in one of three basic leather colors, the chair would feature high-end ergonomically designed seating for the busy executive. The company is used to making a 60% margin on its sales to cover the massive marketing and distribution costs it faces (Ache-No-More has its own stores). The new product will be sold in the company’s own stores, but would also be sold through other channels. The information that Alice pulled together is in the table below.

REQUIRED:

a. Using the information above, calculate the current cost of the new product.

b. What is the target cost?

c. What is the current cost gap?

d. Ache-No-More has been approached by an Indian company that is willing to manufacture the desk chair for $590 delivered. Should Ache-No-More outsource this product? Why or why not?

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Ache-No-More Company Production Item Quantity Price Leather for chair 10 yards $14.00 per yard Armrests 2 each $20.00 each Ergonomic support mechanism 1 each $90.00 each Padded headrest 1 each $12.00 each Height odjustable cylinder 1 each $25.00 each Wooden base 8 feet $4.00 per foot Wheel assemblies 4 eoch $5.00 eoch Screw and grommets 40 each $0.05 eoch