Green Tech Ltd is set to introduce EcoGlow, a new line of solar-powered garden lights, to its eco-friendly product range. The marketing team has set a competitive retail price of $80 per unit for EcoGlow. GreenTech targets a profit margin of 30% on sales. With the market for solar technology advancing rapidly, EcoGlow is expected to have a market life of four years after entering the market.

Preliminary Cost Estimates for EcoGlow (per unit):

• Direct Material Each unit of EcoGlow will require direct materials of $27, but there will be waste in the production of 10% of the total materials used.
• Direct Labor Each unit of EcoGlow will require 0.2 hours of direct labour time. Labour is paid at $30 per hour.
• 120% of Direct Labor

The marketing department is keen to introduce EcoGlow as soon as possible. However, the management accountant is concerned about some of other costs likely to be associated with the new product. He asks the departments that are upstream and downstream of manufacturing to estimate the costs associated with the development, production and sale of Ecolow. He receives the following information:

Estimated upstream and downstream costs:

Research and development- year 0 = 400,000

Product and process design- year 0=

800,000

Marketing and launch- year 0

=100,000, year 1= 200,000, year 2= 200,000, year 3= 100,000, year 4=50,000

Customer service and support- year

1=10,000, year 2=24,000, year 3= 30,000, year 4=27,000, year 5=15,000

The forecast sales of Ecoglow are as follows: Units: Year

1-5,000 Year 2 - 10,000 Year 3 - 15,000

Year 4 - 5,000

With this Information:

Calculate the target cost per unit for Eco flow based on the targeted 30% profit margin on the retail price of $80. Determine if there is a cost gap (cost reduction objective, ect) based on the initial cost estimates. Show workings.

Prepare a comprehensive life cycle budget for ecoglow that covers each year from year 0-5 using the target selling price and target cost

Considering the target costing and life cycle cost forecast, provide a recommendation on wether green tech should proceed with the development of ecoglow. Include justification for your recommendation based on your calculation in the a and b.

Review the issue