The marketing department of Nikko Heaters Ltd has recommended that the company introduce a new solar hot water system, to be called the Ekko. To compete effectively with similar models offered by other companies, the Ekko would need to be priced at $800. The company requires a target profit margin on sales for all new products of at least 30% of sales. The technology in solar energy is developing rapidly, and therefore the Ekko is expected to be obsolete within three years of entering the market. The Marketing Department is keen to introduce the Ekko as soon as possible.

Analysis of manufacturing costs for the Ekko show that at a volume of 4,000 units, total manufacturing costs of $2,600,000 is expected. At a volume of 12,000 units, total manufacturing costs of $5,800,000 is expected. If volumes exceed 12,000 units, fixed manufacturing costs will increase by 20%.

The management accountant is concerned about the non-manufacturing costs associated with the new product. The following estimated costs of the Ekko were received from the other departments: