Laser Cast, Inc., manufactures color laser printers. Model J20 presently sells f

Question

Laser Cast, Inc., manufactures color laser printers. Model J20 presently sells for $375 and has a total product cost of $300, as follows:

$300

It is estimated that the competitive selling price for color laser printers of this type will drop to $360 next year. Laser Cast has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas:

Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 9 minutes per unit.

Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $8 per unit.

Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 40% of the factory overhead are related to running injection molding machines.

The direct labor rate is $25 per hour.

a. Determine the target cost for Model J20 assuming that the historical markup on product cost and selling price is maintained. Round your final answer to two decimal places.
$

b. Determine the required cost reduction. Enter as a positive number. Round your final answer to two decimal places.
$

c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved. Enter all amounts as positive numbers. Do not round interim calculations but round your final answers to two decimal places.

$300

Explanation / Answer

a TARGET COST FOR MODEL J20 PRESENT AFTER REDUCTION PARTICULARS AMOUNT PARTICULARS AMOUNT SALE PRICE 375 SALE PRICE 360 LESS:PRODUCT COST 300 LESS:MARK UP(SAME MARK UP PERCENT) MARK UP 75 (360*20%) 72 MARK UP PERCENT(75/375*100) 20% TARGET COST $        288 b REQUIRED COST REDUCTION PARTICULARS AMOUNT PRESENT PRODUCT COST 300 AFTER PRODUCT COST 288 REQUIRED COST REDUCTION 12 C DIRECT LABOUR REDUCTION DIRECT LABOUR RATE $25 PER HOUR ACTUAL LABOUR COST $                                      60 TOTAL TIME TAKEN ($60*60 MINUTES)/$25=144 MINUTES REDUCTION IN TIME TAKEN 9 MINUTES PER UNIT TIME TAKEN NOW 144 MINUTES-9 MINUTES=135 MINUTES NEW LABOUR COST (135 MINUTES*$25)/60 MINUTES=$56.25 SAVINGS IN DIRECT LABOUR REDUCTION $60-$56.25=$3.75 ADDITIONAL INSPECTION DIRECT LABOUR RATE $25 PER HOUR ACTUAL LABOUR COST $                                      60 TOTAL TIME TAKEN ($60*60 MINUTES)/$25=144 MINUTES ADDITION IN TIME TAKEN 6 MINUTES PER UNIT TIME TAKEN NOW 144 MINUTES+6 MINUTES=150 MINUTES NEW LABOUR COST (150 MINUTES*$25)/60 MINUTES=$62.50 REDUCTION IN MATERIAL COST $8 PER UNIT ADDITION IN LABOUR COST ($62.5-$60)=$2.5 PER UNIT SAVING IN ADDITIONAL INSPECTION ($8-$2.5)=$5.5 INJECTION MOULDING PRODUCTIVITY IMPROVEMENT CYCLE TIME IMPROVEMENT    PRESENT 4 MINUTE PER PART    TARGET 3 MINUTE PER PART IMPROVEMENT 1 MINUTE PER PART PERCENTAGE OF IMPROVEMENT(1/4*100) 25% DIRECT LABOUR(30%) $60*30%=$18 IMPROVEMENT IN DIRECT LABOUR COST $18*25%=$4.5 FACTORY OH(40%) $20*40%=$8 IMPROVEMENT IN DIRECT LABOUR COST $8*25%=$2 SAVING ($2+$4.5)=$6.5 TOTAL SAVINGS $(3.75+5.5+6.5) $                                                                       15.75

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