Cost Accounting

Red Corporation uses target costing and life-cyce costing to aid in the final decision to release new products to production. The company is currently designing product Alpha that they intend to begin manufacturing and marketing next year (year 2). Because of the rapidly changing nature of this industry, management feels that Alpha will be produced and sold for only 3 years. At the end of the product's life cycle, they can sell the rights to Alpha, and any specialized equipment needed to manufacture Alpha for $250,000. Estimated cost information for Alpha is as follows: Total Fixed Variable Costs over Cost per 4 years Unit Year 1 Design costs $ 650,000 Years 24 Production costs $ 3,560,000 5 20 per unit Marketing and distribution costs $2,225,000 $ $ per unit TIME VALUE OF MONEY SHOULD BE IGNORED FOR THIS PROBLEM 8. Management is considering 2 alternative pricing strategies. A and B as follows: Strategy A Sel Alpha at $50 each from the outset. At this price, they expect unit sales of 500,000 over the product life cycle. Strategy B: 3el Alpha at $70 when it first comes out during year 2. At this price, they expect to sell 100.000 units in year 2 in years 3 and 4, drop the price to $40 per unit. At this level they expect to sell 300.000 units per year in years 3 and 4. Which pricing strategy do you recommend? By how much better off would the company bei they choose that strategy? better by _ Strategy Amount