The marketing department of Hercules Ltd. is planning to introduce a new product

called H-5. The product details are as follows:

? Based on the market considerations, the target selling price per unit would be $800.

? The company's target profit margin on sales for all new products is 25% of sales.

? The initial estimate to manufacture one unit of H-5 includes: direct material $230;

direct labour $125 and the manufacturing overhead to be applied at 80% of direct

labour cost.

The estimated upstream and downstream costs and the estimated sales of the proposed model H-S are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Research and $3,960,00 Development 0 Product and process $1,560,00 design 0 $792,000 Marketing $888,000 $600,000 $504,000 Customer support $360,000 $1,008,000 $720,000 $312,000 Ex ected sales units 16,560 9,120 4,320