Nabors Toys' Product Development Department was in the process of developing a new videogame player. The product life cycle is estimated at 27 months. Estimated sales over its life cycle are 1,500,000 units. For the current design, the development, production, and logistics costs for the life cycle are estimated at $180,000,000. The product specifications and the targeted market share call for a price of $150 per unit. The target profit per unit is $50. Postpurchase costs for the current design are estimated to be $36 per unit.

Required

1. What is the total life-cycle profit desired for the new model?

2. What is the projected life-cycle profit for the new model?

3. What is the target cost? How much must costs be reduced per unit and in total for this target to be met? Describe three approaches available to reduce costs so that the target cost is met.

4. Should postpurchase costs be included in life-cycle costing? In target costing? Explain.