Print Item Target Costing Instant Image Inc. manufactures color laser printers.

Question

Print Item Target Costing Instant Image Inc. manufactures color laser printers. Model 120 presently sells for $460 and has a product cost of $230, as follows: Direct materials Direct labor Factory overhead Total $175 40 15 $230 itis estimated that the competitive selling price for color laser printers of this type will drop to $400 next year. Instant image has estabilisheda target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost-reduction ideas 1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 15 minutes per unit. 2. Add an inspection step that will add six minutes per unit of direct labor but 3. Decrease the cyde time of the injection reduce the materials cost by $20 per unit. molding machine from four minutes to three minutes per part. Forty percent of the direct labor and 48% of the factory overhead are related to running injection molding machines. The direct labor rate is $30 per hour a. Determine the target cost for Model 120, assuming that the historical markup on product cost and selling price are maintained. X per unit b. Determine the required cost reduction per unit c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved. Do not round interim calculations but round your final answers to two decimal places DOLL PrtSer Insert Delete F11 8 9 7

Explanation / Answer

Production cost $230 Selling Price $460 Markup=((460/230)-1)*100 100% Selling Price next year $400 Target Cost=400/2= $200 Required cost reduction $30 (230-200) Direct labor cost=$30 per hour 1 Plastic printer cover with snap on assembly Reduction of direct labor time 15 minute Reduction of direct labor time 0.25 hour Reduction of direct labor cost per unit $7.50 (30*0.25) 2 Add inspection step Six minutes per unit of direct labor $3 (30*(6/60) Increase in cost per unit $3 Reduction in material cost per unit $20 Net reduction in cost per unit $17 (20-3) 3 Decrease in cycle time of injection moulding Direct labor cost in injection molding $16 (0.4*40) Factory overhead cost in injection molding $7.20 (0.48*15) Total cost per unit in injection molding $23.20 (16+7.2) Percentage reduction in cycle time 25% ((4-3)/4)*100 Reduction in cost per unit in injection molding $5.80 (23.2*0.25) Cost reduction per unit with three improvements together $30.30 (7.5+17+5.8) REQUIRED COST REDUCTION CAN BE ACHIEVED

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