Utah Utensil has developed a new kitchen utensil. Th e fi rm has conducted signi

ID: 2369532 • Letter: U

Question

Utah Utensil has developed a new kitchen utensil. Th e fi rm has

conducted signifi cant market research and estimated the following pattern for sales of

the new product:

Year Expected Volume Expected Price per Unit

1 48,000 units $19

2 48,000 units 20

3 90,000 units 16

4 40,000 units 12

If the fi rm desires to net $3.50 per unit in profi t over the life of the product, and selling

and administrative expenses are expected to average $50,000 per year, what is the target

cost to produce the new utensil?

Life-cycle revenue:

Year 1 48,000 x $19 $ 912000

Year 2 48,000 x 20 960000

Year 3 90,000 x 16 1,440,000

Year 4 40,000 x 12 480,000

Total 226000 3792,000

Required profit 226,000

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