Metcalf Electronics’ product development department was in the process of devel- oping a new model for its cellular phone line. The product life cycle is estimated at 27 months. Estimated sales over its life cycle are 200,000 units. For the current de- sign, the development, production, and logistics costs for the life cycle are estimated at $12,000,000. The product specifications and the targeted market share call for a price of $90 per unit. The target profit per unit is $40. Postpurchase costs for the cur- rent design are estimated to be $5 per unit.

Required: lop4 1. What is the total life-cycle profit desired for the new model? What is the projected life-cycle profit for the new model? 3. What is the target cost? How much must costs be reduced per unit and in total for this target to be met? Describe three approaches available to reduce costs so that the target cost is met.

4. Should postpurchase costs be included in life-cycle costing? target costing? Explain.