Required: Smoot discovers that Jensen has designed the sculpture using the highest-grade wood available, rather than the standard grade of wood that Wood Creations normally uses. Replacing the grade of wood will lower the cost of direct materials by 50%. However, the redesign will require an additional $1,100 of design cost, and the sculptures will be sold for $2,300 each. Will this design change allow the sculpture to meet its target return on investment in 1a above? Is the cost of wood a locked-in cost?
Required: Smoot discovers that Jensen has designed the sculpture using the highest-grade wood available, rather than the standard grade of wood that Wood Creations normally uses. Replacing the grade of wood will lower the cost of direct materials by 50%. However, the redesign will require an additional $1,100 of design cost, and the sculptures will be sold for $2,300 each. Will this design change allow the sculpture to meet its target return on investment in 1a above? Is the cost of wood a locked-in cost?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Smoot discovers that Jensen has designed the sculpture using the highest-grade wood available, rather than the standard grade of wood that Wood Creations normally uses.
Replacing the grade of wood will lower the cost of direct materials by 50%. However, the redesign will require an additional $1,100 of design cost, and the sculptures will be sold for $2,300 each. Will this design change allow the sculpture to meet its target
Transcribed Image Text:Question 1
Wood Creations designs, manufactures, and sells modern wood sculptures. Sally Jensen is
an artist for the company. Jensen has spent much of the past month working on the design
of an intricate abstract piece. Jim Smoot, product development manager, likes the design.
However, he wants to make sure that the sculpture can be priced competitively. Alexis
Nampa, Wood's cost accountant, presents Smoot with the following cost data for the
expected production of 75 sculptures:
$ 8,000
30,000
37,000
33,000
25,000
15,000
Design cost
Direct materials
Direct manufacturing labor
Variable manufacturing overhead
Fixed manufacturing overhead
Marketing
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