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Hatters Ltd is planning the implementation of a new product line within its portfolio of products. The new product has a planned economic life of
Hatters Ltd is planning the implementation of a new product line within its portfolio of products. The new product has a planned economic life of three years. Hatters operates in an extremely competitive market where any level of overpricing will significantly reduce sales. Hatters is using target cost analysis. The following information regarding Hatters' planned new product has been developed: 1. Forecast average sales volume each year - 28,000 units. 2. To achieve the planned sales each year in its highly competitive market the selling price is planned to be as follows, or lower if at all possible: Year 1 - $86 per unit. Year 2 - $92 per unit. Year 3 - $74 per unit. 3. The required margin for long term corporate success and based on lifecycle analysis of costs and revenues, is 28% of average unit selling price. 4. Initial planned total life cycle costs over 3 years are $6,100,000. 5. Total and annual planned production volume is expected to be equal to total sales. Hatters uses an on-line ordering model and produces only as orders are received resulting in great efficiencies both economically and environmentally as no resources are wasted in inventories or storage. In order to achieve the desired profit margin per unit and compete most effectively, by not overpricing outside current planned profit levels, what change will need to be achieved before making the decision to proceed with the product?: O A. Increase the overall lifetime costs by $1,019,676 O B. Increase the gap by $12.13 per unit. O C. Increase the average selling price per unit by $16.86 per unit O D. Reduce overall lifetime costs by $1,019,676
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