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UIC television and electric company represen TU in determining a pole rental fee?! Wildl prop- lume. company representatives. evel- iated . Target Costing The president of Ho Versatile CVD. The er programs or sound to play or record Ti LO3 ation compact disks U uston Electronics was pleased with the comnany's newest product, the product is portable and can be attached to a computer to play or record com und attached to an amplifier to play or record music or attached to a television TV programs. It can even be attached to a camcorder to record videos directly et disks rather than on tape. It also can be also can be used with a headset to play or record sound. The lant announced that this unique and innovative product would be an important factor in ishing the North American consumer electronics industry. on development costs and predictions of sales volume, manufacturing costs, and distri- to the cost-based price of the HE Versatile CVD was determined to be $425. Following bet-skimming strategy, management set the initial selling price at $525. The marketing plan reduce the selling price by $50 during each of the first two years of the product's life to 75 75 proud president anno reestablishing the Based on develop 50 bution costs, the cost-base a market-skim an- ell- whtain the highest contribution possible from each market segment. The initial sales of the HE Versatile CVD were strong, and Houston Electronics found itself adding second and third production shifts. Although these shifts were expensive, at a selling price of $525, the product had ample contribution margin to remain highly profitable. The president was talking with the company's major investors about the desirability of obtaining financing for a major plant expansion when the bad news arrived. A foreign company had announced that it would shortly introduce a similar product that would incorporate new design features and sell for only $350. The president was shocked. "Why," she remarked, it costs us $375 to put a complete unit in the hands of customers." ts REQUIRED le ww could the foreign competitor profitably sell a similar product for less than the manufactur- mg costs to Houston Electronics? What advice do you have for the president concerning the HE CVD? What advice would you have to help the company avoid similar problems in the future