Question: Picturethis Ltd assembles and sells many models of digital camera. It is considering extending its product range to include specialist photographic printers. The printers are complex to manufacture and would be produced on an assembly line by workers assembling a variety of individual components. Production overheads are currently absorbed into product costs on an assembly labour hour basis. Picturethis Ltd is considering a target costing approach for its new photographic printer. Market research has indicated that a similar product with a selling price of 265 has recently been launched by a competitor, the Marketing manager at Picturethis has suggested that a selling price 2% above that of the competitor is the maximum that could potentially be charged, as he believes brand loyalty will ensure sales as long as price is competitive. Managers have agreed that an acceptable profit margin for the printer, after allowing for all production costs, would be 25%. Full production cost is initially estimated to be 210.25.

Required:

1. Explain the benefits to Picturethis Ltd of adopting a target costing approach at such an early stage in the product development process.

1. 2. On the basis of the information provided above calculate any target cost gap that may exist and if so, make reasoned suggestions as to how any target cost gap might be eliminated.
2. 3. Briefly explain the concept of Lifecycle costing and evaluate any potential benefits that could be gained in using this approach when a company is considering the introduction of a new product.