## Target Costing### Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $150 and has a product cost of $120, as follows:- **Direct materials:** $90- **Direct labor:** $20- **Factory overhead:** $10**Total Cost:** $120It is estimated that the competitive selling price for color laser printers of this type will drop to $140 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: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 $3 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 $8 per hour.### Tasks**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.** \$______ per unit**b. Determine the required cost reduction. Enter as a positive number. Round your final answer to two decimal places.** \$______ 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.**1. **Direct labor reduction:** \$______ per unit2. **Material cost reduction:** \$______ per unit3. **Overhead cost reduction:** \$______ per unit ### Cost Reduction Analysis for Laser PrintersIt is estimated that the competitive selling price for color laser printers of this type will drop to $140 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: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 $3 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 $8 per hour.#### Tasksa. **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.- **Target cost per unit: $ [ ]**b. **Determine the required cost reduction.** Enter as a positive number. Round your final answer to two decimal places.- **Required cost reduction 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.1. **Direct labor reduction: $ [ ] per unit**2. **Additional inspection: $ [ ] per unit**3. **Injection molding productivity improvement: $ [ ] per unit**- **Total savings: $ [ ] per unit**

a) Markup on Product cost = (sell price-cost)/cost = (150-120)/120 = 25.00% Hence Target cost = sell…

Target Costing Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $150 and has a product cost of $120, as follows: Direct materials $90 Direct labor 20 Factory overhead 10 Total $120 It is estimated that the competitive selling price for color laser printers of this type will drop to $140 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: 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 $3 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 $8 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. per unit b. Determine the required cost reduction. Enter as a positive number. Round your final answer to two decimal places. 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. 1. Direct labor reduction per unit

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q