AIP 4.1 Target Costing and Product Mix LO 4

The Peter Paint Company makes water- and oil-based paints for houses. Recently, the firm has been investigating other opportunities. One possibility is producing 'finger paints' for children. Finger paints are considerably different from house paints, since they must be designed and produced to be easily washable. The marketing people at Peter Paint believe that there is an opportunity to enter this new market. They estimate

that the company could sell 1 million units of finger paints annually for $1 per unit.

Question

a. How should Peter Paint use this information in making a decision to add finger paints to its product mix?