The projected sales price for a new product (which is still in the development stage of the product life cycle)is $50.The company has estimated the life-cycle cost to be $30 and the first-year cost to be $60.On this type of product,the company requires a $12 per unit profit.What is the target cost of the new product?
A)$30
B)$38
C)$42
D)$60

Question

Quizplus · Accepted Answer

Target cost = projected selling price - required profit 
= $50 - $12 
= $38 
But, they have also estimated the lifecycle cost to be $30 and the first-year cost to be $60, so the target cost needs to be adjusted accordingly. 
Adjusted target cost = Target cost - (Lifecycle cost/Projected units) - First-year cost 
= $38 - ($30/1) - $60 
= $38 - $30 - $60 
= -$52 (a negative number) 
This means that the company cannot achieve a $12 profit with these costs and the projected selling price of $50, so they will need to reconsider their costs or pricing strategy. 
Therefore, the best choice is B.

The Projected Sales Price for a New Product (Which Is