Xenon Company incurred $1,000,000 in research and development costs over an 18 month period to develop product X1. Sales of product X1 will begin at the end of the 18 month period. The sales price of product X1 will be $20 per unit. Fixed costs are $140,000 per month. Xenon's expected return on sales (margin after fixed and variable costs) target is 25%. Sales volume is projected to be 20,000 units per month. a) Compute the target cost per unit and the variable cost allowable for Xenon to achieve its profitability goal. b) Compute Break Even Time for product X1. this a good opportunity to pursue if you knew the product life cycle would be 24 months? Why or why not?
Xenon Company incurred $1,000,000 in research and development costs over an 18 month period to develop product X1. Sales of product X1 will begin at the end of the 18 month period. The sales price of product X1 will be $20 per unit. Fixed costs are $140,000 per month. Xenon's expected return on sales (margin after fixed and variable costs) target is 25%. Sales volume is projected to be 20,000 units per month. a) Compute the target cost per unit and the variable cost allowable for Xenon to achieve its profitability goal. b) Compute Break Even Time for product X1. this a good opportunity to pursue if you knew the product life cycle would be 24 months? Why or why not?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ff.123.
Transcribed Image Text:Xenon Company incurred $1,000,000 in research and
development costs over an 18 month period to develop
product X1. Sales of product X1 will begin at the end of
the 18 month period. The sales price of product X1 will
be $20 per unit. Fixed costs are $140,000 per month.
Xenon's expected return on sales (margin after fixed and
variable costs) target is 25%. Sales volume is projected to
be 20,000 units per month.
a) Compute the target cost per unit and the variable
cost allowable for Xenon to achieve its profitability goal.
b) Compute Break Even Time for product X1.
this a good opportunity to pursue if you knew the
product life cycle would be 24 months? Why or why not?
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