Sagat Co, a watch producer, released a new product for teenagers LCD watch. The product is projected to have 2 years life cycle following a release of an upgraded version of LCD watch. Sagat Co plans to use life cycle costing for total production cost and profit calculation purposes.

Product development costs total $2MM and the company gave up the opportunity to earn $950,000 contribution from another product sale. Sagat Co owns a 5-year patent for the technology, but it must be renewed on an annual basis with associated renewal costs of $50,000. The costs of the patent were $200,000.

Below projections are related to the LCD watch production.

2020 2021

Sales volumes (units)

Selling price per unit Material cost per unit

Labour cost per unit

Fixed production overheads Selling and distribution costs Environmental costs

350,000 560,000

$$ 50 45 19 16 10 8 1.8 2.0 0.7 0.8 0.2 0.18

Sagat Co does not have a fixed marketing contract so there are some doubts associated with advertising campaign costs. Below probabilities and range of costs are retrieved from open market sources:

Year 1

Expected cost Probability

($m) ($m)

2,5 0,3 3,0 0,4 3,5 0,3

Required:

1,5 0,2 2,5 0,5 3,5 0,3

(i) Using life cycle costing method, calculate the total expected profit for 2020 and 2021 (5 marks);

(ii) Using the target costing methodology briefly describe practical ways to close the target cost gap (2 marks);

(iii) Explain how activity-based costing methodology may implemented to account for the environmental costs of the business (2 marks).

please quick