Homework Chapter 25 Target Costing Laser Impressions Inc. manufactures color laser printers. Model J20 presently sells for $375 and has a product cost of $300, as follows: Direct materials Direct labor Factory overhead Total $220 60 20 $300 It is estimated that the competitive selling price for color laser printers of this type will drop to $360 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 40% 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 320, 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. 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. Do not round interim calculations but round your final answers to two decimal places. 1. Direct labor reduction 2. Additional inspection 3. Injection molding productivity improvement Total savings per unit per unit per unit per unit
Homework Chapter 25 Target Costing Laser Impressions Inc. manufactures color laser printers. Model J20 presently sells for $375 and has a product cost of $300, as follows: Direct materials Direct labor Factory overhead Total $220 60 20 $300 It is estimated that the competitive selling price for color laser printers of this type will drop to $360 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 40% 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 320, 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. 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. Do not round interim calculations but round your final answers to two decimal places. 1. Direct labor reduction 2. Additional inspection 3. Injection molding productivity improvement Total savings per unit per unit per unit per unit
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Transcribed Image Text:Homework Chapter 25
Target Costing
Laser Impressions Inc. manufactures color laser printers. Model J20 presently sells for $375 and has a product
cost of $300, as follows:
Direct materials
Direct labor
Factory overhead
Total
$220
60
20
$300
It is estimated that the competitive selling price for color laser printers of this type will drop to $360 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 40% 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 320, 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. 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. Do not round interim calculations but round your final answers to two decimal places.
1. Direct labor reduction
2. Additional inspection
3. Injection molding productivity improvement
Total savings
per unit
per unit
per unit
per unit
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