A new product is being evaluated. Market research has surveyed the potential market for this product and believes that it will generate a total demand of 50,000 units at average price of $280. Total sots for the various value-chain functions using existing process technology are:

Value Chain Function	Total cost over Product life
R & D	4,510,000
Design	730,000
Manufacturing	3,000,000
Marketing	900,000
Distribution	1,100,000
Customer Service	760,000
Total Cost over product life	$11,000,000

Management has a target profit percentage of 40% of sales. Production engineering indicates that a new process technology can reduce the manufacturing cost by 40% but it will cost $150,000.

1. Assuming the existing process technology is used, should the new product be releases to production?

The unit target cost is $X. The expected average unit cost if the new product is release to production would be $X. The new product Should/Should not be released to production because the expected average unity cost is greater than/less than the unit target cost.

2. Assuming the new process technology is purchased, should the new product be released to production?

First calculate the total cost savings if the new process technology is purchased.

The total cost savings will be $X.

If the new process technology is purchased, the expected average unity cost will be $X. The new product should/should not be released to production because the expected average unit cost is greater than/less than the unit target cost.