Elgin Kitchens, Inc., is considering the production of a new kitchen vent system

Question

Elgin Kitchens, Inc., is considering the production of a new kitchen vent system. The Marketing Department has determined that there would be demand for the product at or below a selling price of $150 per unit. Anticipated unit costs are as follows:

Direct materials                                               $26.00

Direct labor costs

     Manufacturing

          Hours                                                          2.2

          Hourly rate                                            $12.00

     Assembly

          Hours                                                         2.5

          Hourly rate                                            $10.00

Machine hours                                                          2

Elgin uses the following activity-based costs:

Materials handling                              120% of direct material

Production                                          $7.00 per machine hour

Shipping and handling                                           $10 per unit

The company

Explanation / Answer

(a) Calculation of the target cost for this product:

b. Yes, it should be produced because cost of the product is below its selling price. the company will earn a profit of $17.40 even at the price of $150 per unit ($150 - $132.60)

Direct material $26.00 Direct labor (2.2 hours x $12) 26.40 Assembling (2.5 hours x $10) 25.00 Materials handling ($26 x 120/100) 31.20 Production ( 2 hours x $7) 14.00 Shipping and handling 10.00 Target cost of the product $132.60

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

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