Value engineering, target pricing, and target costs. Westerly Cosmetics manufactures and sells a variety of makeup and beauty products. The company has developed 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 Direct materials Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead Fixed marketing $1,700,000 4,000,000 1,600,000 400,000 2,500,000 3,000,000
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
The company believes that it can successfully sell the product for $45 a bottle. The company’s target operating income is 30% 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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A componenet of the direct materials cost requires the nectar of a specific plant in South America. If the company could eliminate this special ingredient, the materials cost would decrease by 25%. However, this would require design changes of 300000 to engineer a chemical equivalent of the ingredient. Will this design change allow the product to meet its target cost?
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