LO.4 & LO.5 (Target costing) The marketing department at Cleveland Furniture Mfg. has an idea for a new product that is expected to have a 6-year life cycle. After conduct- ing market research, the company found that the product could sell for $800 per unit in the first 4 years of life and for $650 per unit for the last 2 years. Unit sales are expected to be as follows: Year 1 4,000 Year 2 3,600 Year 3 4,700 Year 4 5,000 Year 5 1,500 Year 6 1,000 Per-unit variable selling costs are estimated at $140 throughout the product's life; total fixed selling and administrative costs over the 6 years are expected to be $3,700,000. Cleveland Furniture Mfg. desires a profit margin of 15 percent of selling price per unit. a. Compute the life cycle target cost to manufacture the product. (Round to the near- est cent.) b. If the company expects the product to cost $430 to manufacture in the first year, what is the upper bound for manufacturing cost in the following five years? (Round to the nearest cent.) c. Refer to the original information. Assume that Cleveland Furniture Mfg. engineers indicate that the expected manufacturing cost per unit is $340. What actions might the company take to reduce this cost?

LO.4 & LO.5 (Target costing) The marketing department at Cleveland Furniture Mfg. has an idea for a new product that is expected to have a 6-year life cycle. After conduct- ing market research, the company found that the product could sell for $800 per unit in the first 4 years of life and for $650 per unit for the last 2 years. Unit sales are expected to be as follows: Year 1 4,000 Year 2 3,600 Year 3 4,700 Year 4 5,000 Year 5 1,500 Year 6 1,000 Per-unit variable selling costs are estimated at $140 throughout the product's life; total fixed selling and administrative costs over the 6 years are expected to be $3,700,000. Cleveland Furniture Mfg. desires a profit margin of 15 percent of selling price per unit. a. Compute the life cycle target cost to manufacture the product. (Round to the near- est cent.) b. If the company expects the product to cost $430 to manufacture in the first year, what is the upper bound for manufacturing cost in the following five years? (Round to the nearest cent.) c. Refer to the original information. Assume that Cleveland Furniture Mfg. engineers indicate that the expected manufacturing cost per unit is $340. What actions might the company take to reduce this cost?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Rusty Company is considering developing a new product. The company has gathered the following information on this product: Expected total unit cost $20 Estimated investment for new product $700,000 Desired ROI 5% Expected number of units to be produced and sold 1,000 The desired markup percentage is: A) 275%. C) 175% B) 75%. D) 100%
Cabin Creek Company is considering adding a new line of kitchen cabinets. The company's accountant provided the following estimated data for these cabinets: Annual sales Selling price per unit Variable manufacturing costs per unit Variable selling costs per unit Incremental fixed costs per year: Manufacturing Selling r Allocated common costs per year: Manufacturing Selling and administrative 800 units $ 3,570 $ 1,570 $ 420 $ 482,400 $ 62,000 $ 87,000 $ 119,000 If the kitchen cabinets are added as a new product line, the company expects that the contribution margin earned from selling its of products will decrease by $214,000 per year. Required: 1. What is the annual financial advantage (disadvantage) of adding the new line of kitchen cabinets? 2. What is the lowest selling price per unit that could be charged for the cabinets and still make it economically desirable for the company to add the new product line? Complete this question by entering your answers in the tabs below. Required…
Majesty Company uses target costing to ensure that its products are profitable. Assume Majesty is planning to introduce a new product with the following estimates: Estimated market price $ 1,500 Annual demand 86,000 units Life cycle 7 years Target profit 26 % return on sales Required: 1. Compute the target cost of this product. 2. Compute the target cost if Majesty wants a 36 percent return on sales. 3. Compute the target cost if Majesty wants a 7 percent return on sales.
ABC has developed a new kitchen utensil. The firm has conducted significant market research and estimated the following pattern for sale of new product YEAR EXPECTED VOLUME EXPECTED PRICE PER UNIT 1 48,000 19 2 48,000 20 3 90,000 16 4 40,000 12 The firm wants a net minimum of 3.5 profit per unit over the product life. Fixed average expenses related to the new product is expected to be 50,000 annually. Calculate the target cost per unit.
Delsteph Co introduced a new product, LD to its range last year. The machine used to mould each item is a bottleneck in the production process meaning that a maximum of 7000 units per annum can be manufactured. The LD product has been a huge success in the market place and as a result, all items manufactured are sold. The marketing department has prepared the following demand forecast for future years as a result of feedback from customers. Year 1 Demand (units) 8500 2 Maximum additional output Current selling price Variable operating costs Fixed operating costs 10500 $30000 3 The directors are now considering investing in a second machine that will allow the company to satisfy the excess demand. The following information relating to this investment proposal has now been prepared: Initial investment 7000 units 12000 Page 7 of 10 $90 per unit $40 per unit $20000 per year 4 6000 If production remained at 6000 units, the current selling price would be expected to continue throughout the…
Al Maha Ceramics SAOG is to provide quality ceramic tiles and world class designs in Oman. The company is planning to sell the package of tiles for OMR 450 and want to achieve 25% as target profit. Examine what would the company’s target cost for this product? a. OMR 300 b. OMR 400 c. OMR 320 d. OMR 360
What is the journal entry to record issuance of the bonds on January 1, 2019? Dr. Cash, P500,000 and Cr. Bonds Payable, P500,000 Dr. Cash, P500,000 Cr. Premium on Bonds Payable, P28,253 & Cr. Bonds Payable P471,747 Dr. Cash, P471,747; Dr. Discounts on Bonds Payable, P28,253 & Cr. Bonds Payable P500,000 Dr. Cash, P471,747; Dr. Interest Expense, P28,253 and Cr. Bonds Payable P500,000
The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for the company's products is increasing, and management requests assistance from you in determining an economical sales and production mix for the coming year. The company has provided the following data: Product Demand Next year (units) Debbie Trish Sarah Mike Sewing kit Selling Price per Unit $ 15.50 $ 6.00 51,000 43,000 $ 25.00 36,000 40,000 $ 11.00 326,000 $ 8.10 The following additional information is available: Direct Materials $ 4.40 $ 1.20 $6.59 $ 2.10 $ 3.30 Direct Labor $ 2.70 $ 1.20 $ 4.50 $ 3.30 $0.90 a. The company's plant has a capacity of 118,450 direct labor-hours per year on a single-shift basis. The company's present employees and equipment can produce all five products. b. The direct labor rate of $6 per hour is expected to remain unchanged during the coming year. c. Fixed manufacturing costs total $530,000 per year. Variable overhead costs are $3 per direct labor-hour. d. All of the…
Al Ameen Company sells television sets for RO 200. The variable cost is RO 100 per unit. The fixed costs are RO 350,000. The company wants to have a profit of RO 150,000. How many units must be sold to achieve this goal? a. 6,000 units b. 2,000 units c. 5,000 units d. 3,000 units