Whilst the Directors are keen to progress with the introduction of the flavoured infusions, given that this is a growing market, the management accountant is concerned that sufficient research has not been carried out and that a decision is being made too quickly. The management accountant has therefore undertaken further forecasting and provided the following information: Forecasted number of boxes of infusion tea to be made and sold: Year 1 40,000 Year 2 42,000 Year 3 45,000 The suggested selling price is to be 2.00 per box in the first year, rising in line with inflation which is currently expected to be 3% per annum. Variable production costs are expected to be 1.05 per box in year 1 but will also rise in line with inflation of 3% per annum. For the first year, fixed costs of maintenance are correctly forecast at 15,000 and other production overheads are expected to be 10,000 with both these costs being subject to inflation at 2% per annum. Advertising costs are expected to be incurred at 9,000 in year 1, 8,000 in year 2 and 6,000 in year 3. The profit margin on infusion teas is low at 15% and whilst the life cycle for infusion teas is indefinite, Taste Buds Tea Co. would expect the profit margin to be achieved by the third year of production. Required: e) Using the addition information provided by the accountant only, calculate the cost gap per unit for each of the three years of the products life and, based on your calculation, advise whether Taste Buds Tea Co should proceed with the infusion tea bags. (7 marks) f) Advise on the extent to which Target Costing would help Taste Buds Tea Co. to achieve their objective to bring this new product to the market (10 marks) g) If a decision was made to proceed with the product, advise how Kaizen costing would help to achieve the required 15% margin

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