ClassCo is performing a target costing analysis of a hearing aid (ClassCo-2), which sells for $750 (Var cost = $450, Op Inc = $500K at base volume) and has 30% of the market However, a competitor has introduced a new model that incorporates a computer chip that improves quality Its price is $850 A consumer analysis indicates that cost-conscious consumers will remain loyal to ClassCo as long as price does not exceed $600 Alternative A: Try to Maintain current Optic. & Contrib. Margin per unit: reduce SP to $600, reduce R&D, replace parts, and reduce inspection procedure-savings = $150 [$300K of fixed & $120 unit of variable]. no capital expenditures Very in WC - Alternative B: Do A AND replace parts deducting $30 unit variable to "A" option and reduce inspection Mfg. Fixed procedure savings = $150 Alternative C: staring with BASE, R&D Capital exp. of $500k, 5 yr. life, -0- residual increase R&D to develop a computer chip based hearing aid, replace parts, Mfg Exide Expo change inspection procedure renegotiate new supplier contract-savings = $150K, increase commissions by 5% per unit units increase 3%