3. Determine the cost of all activities for the proposed new process. Now, assign the cost of the secondary activity to the primary activities.

4. Classify the primary activities into three categories: environmental, quality, and other (neither quality nor environmental). Did some activities end up in more than one category? Explain.

5. Calculate the cost per unit for each of the proposed products using primary activity rates. Now, calculate the environmental cost per unit and the quality cost per unit. What does this tell you about the relative desirability of the two products?

6. Following Larrys suggestion, Luis decided to use target costing to help improve new product profitability. Based on analyses by Luis and Doreen, the target prices for XK1 and XK5 are $50 per pound and $35 per pound, respectively. Luis has indicated that any new product should earn a gross profit equal to 20 percent of sales. Based on this information, answer the following:

a. What is the target cost for each product? Given this information, what should be done?

b. Suppose Doreen indicates that sales for each product can be increased by 50 percent if the selling price is lowered by 10 percent. Assuming the same target profit (luis wants the original target profit per pound maintained), calculate the new target costs. If all nonvalue-added costs were eliminated, could the target be met? (calculate the unit cost at the 50,000 unit level.) Now, calculate the effect on total profits under a scenario where nonvalue-added costs are not eliminated versus a scenario where all nonvalue-added costs are eliminated. (include in this analysis any possible increase in sales volume.)