Life-cycle product costing. Intentical Inc. manufactures game systems. Intentical has decided to create and market a new system with wireless controls and excellent video graphics.

Intentical’s managers are thinking of calling this system the Yew. Based on experience, they expect the total life cycle of the Yew to be four years. They budget the following costs for the Yew:

REQUIRED 1. Suppose the managers price the Yew game at $110 pér unit. How many units do they need to sell to break even?
2. The managers are reviewing two alternative pricing strategies:

a. Sell the Yew at $110 each from the outset. At this price they expect to sell 1,500,000 units over its life cycle.

b. Boost the selling price of the Yew in year 2 when it first comes out to $240. At this price, they expect to sell 100,000 units in year 2. In years 3 and 4, they will drop the price to $110 per unit and believe unit sales will be 1,200,000.
What pricing strategy would you recommend? Explain.
3. What other factors should Intentical consider in choosing its pricing strategy?LO1

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Year 1 R&D costs Design costs Years 2-4 Total Fixed Costs Over 4 Years $ 6,590,000 $ 1,450,000 $19,560,000 Variable Cost per Unit Not applicable Not applicable $50 per unit Production costs Marketing and distribution costs, $ 5,242,000 Customer-service costs $ 2,900,000 $10 per unit Not applicable