Millennium Printers Inc. manufactures color laser printers. Model L-1819 presently sells for $150 and has a total product cost of $120, as follows: Direct materials $90 Direct labor 20 Factory overhead 10 Total $120 It is estimated that the competitive selling price for color laser printers of this type will drop to $140 next year. Millennium Printers wants to establish a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas: Purchase a plastic printer
Millennium Printers Inc. manufactures color laser printers. Model L-1819 presently sells for $150 and has a total product cost of $120, as follows:
| Direct materials | $90 |
| Direct labor | 20 |
| Factory |
10 |
| Total | $120 |
It is estimated that the competitive selling price for color laser printers of this type will drop to $140 next year. Millennium Printers wants to establish 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. This will reduce the amount of direct labor by nine minutes per unit.
- Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $3 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 45% of the factory overhead is related to running injection molding machines.
The direct labor rate is $8 per hour.
a. Determine the target cost for Model L-1819 assuming that the historical markup on product cost is maintained. Round your answer to two decimal places.
$fill in the blank 1 per unit
b. Determine the required cost reduction. Enter as a positive number. Round your answer to two decimal places.
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