Target costing: manufacturer suppose you have just started a business to manufac

Question

Target costing: manufacturer

suppose you have just started a business to manufacture your latest invention, the Glammaglob gadget. you estimate that after a few tears on the market these gadgets will sell for about $250. this estimate takes account of the introduction of similar devices by your compeitors. furthermore, let's say you want to make a profit of $50 on each gadget sold.

required:

1. what is the target cost for the Glammaglob gadget?

2. what is the target profit?

3. what is the target price?

4. suppose your engineers and management accountants conclude that your design of the Glammaglob gadget will result in a unit cost of $230. how can you use the concept of the target costing to help achieve your object?

Explanation / Answer

1) $200

2) $50

3) $250

4) $230 is more than target cost, which will decrease the target profit.

To compete effectively, organizations must continually redesign their products in order to shorten product life cycles. The planning, development and design stage of a product is therefore critical to an organization's cost management process. Considering possible cost reduction at this stage of a product's life cycle (rather than during the production process) is now one of the most important issues facing management accountants in industry.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.