Management at Fox Valley Machine Tool Co. is considering the development of a new automated drill press called the AutoDrill. After conferring with the design engineers, the controller’s staff assembled the following data about this product:

Target selling price...................................................$6,000 per unit
Desired profit percentage.......................................20% of total unit cost
Projected unit demand...........................................4,500 units
Activity-based cost rates
Materials handling...................................................5% of direct materials and purchased parts cost
Engineering...............................................................$300 per unit for AutoDrill
Production and assembly.......................................$50 per machine hour
Delivery.....................................................................$570 per unit for AutoDrill
Marketing.................................................................$400 per unit for AutoDrill
Per-unit data
Direct materials cost...............................................$1,620
Purchased parts cost..............................................$200
Manufacturing labor
Hours.........................................................................6
Hourly labor rate......................................................$14
Assembly labor
Hours.........................................................................10
Hourly labor rate......................................................$15
Machine hours.........................................................30

1. Compute the product’s target cost.

2. Compute the product’s projected unit cost based on the design engineers’ estimates.

3. Should management produce and market the AutoDrill? Defend your answer.