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Activities with step-cost behavior are being fully utilized by existmig prounc... any new product demands will increase resource spending on these activities. Two designs are being considered for a new product: Design I and Design II. The following information is provided shant sach decion ( 1.000 units of the product will be produced): The company has recently developed a cost equation for manufacturng coswo nonng di rect labor hours as the driver. The equation has R2 0.60 and is as follows: Y=$150,000+$20X Required: 1. Suppose that Design Engineering is told that only direct labor hours drive manu facturing costs (based on the direct labor cost equation). Compute the cost of each design. Which design would be chosen based on this unit-based cost assumption? 2. Now compute the cost of each design using all driver and activity information. Which design will now be chosen? Are there any other implications associated with the use of the more complete activity information set? 3. Consider the following statement: "Strategic cost analysis should exploit internal linkages." What does this mean? Explain, using the results of Requirements 1 and 2. 4. An outside consultant indicated that target costing ought to be used in the de sign stage. Explain what target costing is, and describe how it requires an under standing of both supplier and customer linkages. 5. What other information would be useful to have concerning the two designs? Explain

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