QUESTION THREE Muzik Ltd. manufactures a range of electronics products. Technical staff recently developed a design for a new type of in-car music player which can be used to play CDs, digital downloads, and cassette tapes. The board of the company has asked the marketing, financial, and production directors to evaluate the design before a decision is made as to whether to begin production of the music player. The marketing director has suggested that Sh.9000 would be a suitable selling price for the music player and that 6,000 units per annum wouid be sold at this price. Variable selling costs would amount to Sh. 1200 per unit sold The financial director has estimated that the new capital equipment required in order to manufacture the music player would cost Sh.300,000,000. The company requires an annual return on investment (ROI) of 8% on all capital investments The production director has not yet finalized her estimate of the cost of manufacturing the music player. However she has commented that the design has certain features which are likely to add to the complexity and cost of the manufacturing process without significantly enhancing the attractiveness of the product to potential customers REQUIRED (a) Using the data provided above, caua the target cost of manufacturing the music player, and explain fully the significance of this figure. (8 marks) (b) Assume now that the production director has estimated the cost of manufacturing the music player (using the recently-developed design) at Sh.5500 per unit and has suggested that the company should accept a reduced ROl if necessary. Calculate the ROl if this suggestion is accepted and comment on the production director's suggestion. (6 marks) c) It is often stated that target costing is most likely to be effective when products are still at the design stage (Gie,, before any production begins) and when comprehensive information about cost driver rates is available from the company's accounting system. Explain why this is so. (6 marks)