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Determine the cost gap

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Question - Mini Case Study - The Research and Development department of Tot3 Ltd, after one year of extensive market survey and product development, is now in the final stage of completing a new gaming machine called '3 Kingdoms'. This game will be suitable for children aged 7 and above.

The following information was obtained from the project file of '3 Kingdoms':

Selling price of a competing gaming machine $1,000 per unit

Estimated market demand 1,200 units in its first year of launching

Required profit margin on product 25% based on the selling price

Expected product cost $680 per unit

The management of Tot3 Ltd believes that '3 Kingdom' can be sold at 20% above the price of the competing gaming machine due to its additional features and novelty in the market. However, this industry is very competitive due to the rapid development and deployment of gaming technology. Customers are always thrill in looking for new gaming gadgets. The life cycle of any gaming machine can only be up to a year before a new model emerged. Companies need to have plans to dispose of the old gaming machine inventory once it became outdated.

Required -

(a) Determine the cost gap for the '3 Kingdom'?

(b) Discuss how the use of Target Costing can help Tot3 Ltd to be competitive in the industry, in particular on this case of new gaming machine.

(c) Explain briefly how life cycle costing can be applied in Tot3 Ltd.

Reference no: EM132938694

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