FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
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Transcribed Image Text:Target Costing
Laser Impressions Inc. manufactures color laser printers. Model J20 presently sells for $400 and has a product cost of $320, as follows:
Direct materials
$230
Direct labor
60
Factory overhead
30
Total
$320
It is estimated that the competitive selling price for color laser printers of this type will drop to $380 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:
1. 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.
2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $8 per unit.
3. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 42% of the factory
overhead are related to running injection molding machines.
The direct labor rate is $25 per hour.
a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained. Round your final answer to two
decimal places.
2$
304
per unit
b. Determine the required cost reduction. Enter as a positive number. Round your final answer to two decimal places.
16
per unit
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.
3.75 V per unit
1. Direct labor reduction
-2.50
per unit
2. Additional inspection
%24
8.00 X
per unit
3. Injection molding productivity improvement
16.75
per unit
Total savings
%24
%24
%24
%24
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