Wilster Corporation is pricing a product that it estimates will cost $600 per unit in direct materials and $350 per unit in direct labor. Manufacturing overhead is applied to products at a rate of 120% of direct labor costs. Sixty percent of manufacturing overhead is variable. The company’s regular fixed costs will not be affected by the new product, except for the $1,000,000 in development costs and $7,000,000 in machinery. The product has an 8-year life. It should sell 3,000 units in the first year of its life, then increase by 50% each year for 3 years before falling off by 20% each year for the last 4 years of its life. Wilster prices its products to earn a 20% markup on full costs. What price should be set for the product?
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