Tiffany Cosmetics manufactures, and sells a variety of makeup and beauty products. The company has come up with its own patented formula for a new anti-aging cream The company president wants to make sure the product is priced competitively because its purchase will also likely increase sales of other products. The company anticipates that it will sell 400,000 units of the product in the first year with the following estimated costs: Product design and licensing $ 1,000,000 Direct materials 1,800,000 Direct manufacturing labor 1,200,000 Variable manufacturing overhead 600,000 Fixed manufacturing overhead 2,000,000 Fixed marketing 3,000,000 The company believes that it can successfully sell the product for $38 a bottle. The company’s target operating income is 40% of revenue. Calculate the target full cost of producing the 400,000 units. Does the cost estimate meet the company’s requirements? Is value engineering needed ?
Tiffany Cosmetics manufactures, and sells a variety of makeup and beauty products. The
company has come up with its own patented formula for a new anti-aging cream The company
president wants to make sure the product is priced competitively because its purchase will also
likely increase sales of other products. The company anticipates that it will sell 400,000 units of
the product in the first year with the following estimated costs:
Product design and licensing $ 1,000,000
Direct materials 1,800,000
Direct manufacturing labor 1,200,000
Variable manufacturing
Fixed manufacturing overhead 2,000,000
Fixed marketing 3,000,000
The company believes that it can successfully sell the product for $38 a bottle. The company’s target
operating income is 40% of revenue. Calculate the target full cost of producing the 400,000 units.
Does the cost estimate meet the company’s requirements? Is value engineering needed ?
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