A cross-functional team at Manor Systems is developing a new product using the target costing methodology. Product features in comparison to competing products suggest a price of S2500 per unit. The company requires a profit of 25 percent of selling price.

Required
a. What is the target cost per unit?
b. Suppose the engineering and cost accounting members of the team determine that the product cannot be produced for the cost calculated in part a. What is the next step in the target costing process?