Game Fan Inc. manufactures game systems. They have decided to create and market a new system...

 

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Game Fan Inc. manufactures game systems. They have decided to create and market a new system with wireless controls and excellent video graphics. Based on experience, they expect the total life cycle of the new system to be four years. The design period will be one year. During this design period there will be no revenues. The budget for the new system: Year 1 Years 2-4 Research and development Production Marketing and distribution Customer service Fixed costs per over the Variable cost per unit four-year period $6,000,000 $42,400,000 $1,024,000 $1,280,000 $15 per unit $7per unit Required using excel 1. Compute the number of units to breakeven if the selling price is $150 per unit? 2. The managers are considering two alternative pricing strategies. Recommend strategy a. Sell the system at $150 per unit. Expected sales are 1,830,000 units over the life cycle. b. Sell the system for $250 in year 2. Set the price in years 3 and 4 at $125 per unit. Sales for year 2 are expected to be 300,000 units, year 3 and 4 total sales combined would be 1,600,000 units. c. Explain why companies consider life cycle product costing. Game Fan Inc. manufactures game systems. They have decided to create and market a new system with wireless controls and excellent video graphics. Based on experience, they expect the total life cycle of the new system to be four years. The design period will be one year. During this design period there will be no revenues. The budget for the new system: Year 1 Years 2-4 Research and development Production Marketing and distribution Customer service Fixed costs per over the Variable cost per unit four-year period $6,000,000 $42,400,000 $1,024,000 $1,280,000 $15 per unit $7per unit Required using excel 1. Compute the number of units to breakeven if the selling price is $150 per unit? 2. The managers are considering two alternative pricing strategies. Recommend strategy a. Sell the system at $150 per unit. Expected sales are 1,830,000 units over the life cycle. b. Sell the system for $250 in year 2. Set the price in years 3 and 4 at $125 per unit. Sales for year 2 are expected to be 300,000 units, year 3 and 4 total sales combined would be 1,600,000 units. c. Explain why companies consider life cycle product costing.