a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained. b. Determine the required cost reduction. c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved.
a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained. b. Determine the required cost reduction. c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:8. Instant Image Inc. manufactures color laser printers. Model
J20 presently sells for $455 and has a product cost of $218,
as follows:
Cost Driver
Dollar Amount
Direct materials
$165
Direct labor
35
Factory overhead
18
Total
218
It is estimated that the competitive selling price for color laser
printers of this type will drop to $400 next year. Instant Image
has established a target cost to maintain its historical markup
percentage on product cost. Engineers have provided the
following cost-reduction ideas:
i. Purchase a plastic printer cover with snap-on assembly,
rather than with screws. This will reduce the amount of
direct labor by 15 minutes per unit.
ii. Add an inspection step that will add six minutes per unit of
direct labor but reduce the materials cost by $20 per unit.
iii. Decrease the cycle time of the injection molding machine
from four minutes to three minutes per part. Forty percent
of the direct labor and 48% of the factory overhead are
related to running injection molding machines.
The direct labor rate is $32 per hour.
a. Determine the target cost for Model J20, assuming that the
historical markup on product cost and selling price are
maintained.
b. Determine the required cost reduction.
c. Evaluate the three engineering improvements together to
determine if the required cost reduction (drift) can be
achieved.
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