Laser Cast, Inc., manufactures color laser printers. Model J20 presently sells for $625 and has a total product cost of $500, as follows: Direct materials $360 Direct labor 100 Factory overhead 40 Total $500 It is estimated that the competitive selling price for color laser printers of this type will drop to $590 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: 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. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $13 per unit. 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 $42 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. $fill in the blank 1 b. Determine the required cost reduction. Enter as a positive number. Round your final answer to two decimal places. $fill in the blank 2 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 $fill in the blank 3 2. Additional inspection $fill in the blank 4 3. Injection molding productivity improvement $fill in the blank 5 Total savings $fill in the blank 6

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Target Costing

Laser Cast, Inc., manufactures color laser printers. Model J20 presently sells for $625 and has a total product cost of $500, as follows:

Direct materials	$360
Direct labor	100
Factory overhead	40
Total	$500

It is estimated that the competitive selling price for color laser printers of this type will drop to $590 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:

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.
Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $13 per unit.
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 $42 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.
$fill in the blank 1

b. Determine the required cost reduction. Enter as a positive number. Round your final answer to two decimal places.
$fill in the blank 2

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	$fill in the blank 3
2. Additional inspection	$fill in the blank 4
3. Injection molding productivity improvement	$fill in the blank 5
Total savings	$fill in the blank 6

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