Target Costing Laser Impressions, Inc., manufactures color laser printers. Model

Question

Target Costing

Laser Impressions, Inc., manufactures color laser printers. Model J20 presently sells for $575 and has a total product cost of $460, as follows:

It is estimated that the competitive selling price for color laser printers of this type will drop to $550 next year. Laser Impressions 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 $12 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 $38 per hour.

a. Determine the target cost for Model J20 assuming that the historical markup on product cost and selling price are 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.

$

roduct Decisions Under Bottlenecked Operations

Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $188,000 for the company as a whole. In addition, the following information is available about the three products:

a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production.

b. Prepare an analysis showing which product is the most profitable per bottleneck hour. Round the "Unit contribution margin per production bottleneck hour" amounts to the nearest cent.

$

Total Cost Method of Product Pricing

Smart Stream Inc. uses the total cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 7,500 units of cell phones are as follows:

Smart Stream desires a profit equal to a 16% return on invested assets of $791,440.

a. Determine the total cost and the total cost amount per unit for the production and sale of 7,500 units of cellular phones. Round the cost per unit to two decimal places.

b. Determine the total cost markup percentage (rounded to two decimal places) for cellular phones.
%

c. Determine the selling price of cellular phones. Round to the nearest cent.
$ per cellular phone

Explanation / Answer

Question 1 a Existing Selling Price 575 Existing Total Cost A 460 Earning B 115 Mark UP B/A 25% New Selling Price 550 New Cost (550/(100+25)) 440 Hence Target Cost 440 b Required Cost Reduction 460-440 20 c No Question 2 a Large Medium Small Total Unit Produced 4100 4100 4100 12300 Revenue 250100 1016800 1496500 2763400 Variable Cost 196800 832300 1316100 2345200 Contribution Margin 53300 184500 180400 418200 Fixed Cost 188000 Income from operations 230200 b Contribution Margin A 13 45 44 Autoclave hours per unit B 2 6 4 Unit Cont Margin per production bottleneck hour A/B 6.5 7.5 11 Small is most profitable Question 3 Per Unit Total a. Units 7500 Variable Cost: Direct Material 75 562500 Direct Labor 35 262500 Factory Overhead 23 172500 Selling and Administrative 17 127500 Fixed Cost: Factory Overhead 283100 Selling and Administrative 99400 Total Cost 1507500 Total Cost amount per unit 1507500/7500 201 b. Return needed 791440*16% 126630 Total Cost 1507500 Mark up % 126630/1507500 8.40% c. Total Cost 1507500 add: Mark UP 126630 Selling Price for 7500 Units 1634130 Selling price per unit 217.88

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