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Question 2:

Canton Company, a manufacturer of digital cameras, is considering entry into the digital binocular market. Canton Company currently does not produce binoculars of any style, so this venture would require a careful analysis of relevant manufacturing costs to correctly assess its ability to compete. The market price for this binocular style is well established at $131 per unit. Canton has enough square footage in its plant to accommodate the new production line, although several pieces of new equipment would be required; their estimated cost is $4,800,000. Canton requires a minimum ROI of 11% on any product line investment and estimates that if it enters this market with its digital binocular product at the prevailing market price, it is confident of its ability to sell 16,000 units each year.

Required:

(a)          Identify the costs that Canton Company would consider for decision of entering the digital binocular market.        

Raw materials and direct labor  

Branch manager's salary  

Design and engineering costs  

Variable overhead and new fixed overhead costs               

Facility costs

 (b)         Calculate the target cost per unit for entry into the digital binocular market. 

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