Target costing The marketing department at Cleveland Furniture Mfg. has an idea for a new product that is expected to have a six-year life cycle. After conducting market research, the company found that the product could sell for $800 per unit in the first four years of life and for $650 per unit for the last two years. Unit sales are expected to be as follows: Year 1 4,400 Year 2 Year 3 3,960 5,170 Year 4 5,500 Year 5 1,650 Year 6 1,100 Per-unit variable selling costs are estimated at $140 throughout the product's life; total fixed selling and administrative costs over the six 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 nearest cent.) Note: Round your answer to two decimal places (i.e., round $2.4555 to $2.46). $Answer per unit 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? Note: Round your answer to two decimal places (i.e., round $2.4555 to $2.46). $Answer per unit

Target costing The marketing department at Cleveland Furniture Mfg. has an idea for a new product that is expected to have a six-year life cycle. After conducting market research, the company found that the product could sell for $800 per unit in the first four years of life and for $650 per unit for the last two years. Unit sales are expected to be as follows: Year 1 4,400 Year 2 Year 3 3,960 5,170 Year 4 5,500 Year 5 1,650 Year 6 1,100 Per-unit variable selling costs are estimated at $140 throughout the product's life; total fixed selling and administrative costs over the six 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 nearest cent.) Note: Round your answer to two decimal places (i.e., round $2.4555 to $2.46). $Answer per unit 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? Note: Round your answer to two decimal places (i.e., round $2.4555 to $2.46). $Answer per unit

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

Section: Chapter Questions

Problem 4CE: Refer to Cornerstone Exercises 2.2 and 2.3. Next year, Pietro expects to produce 50,000 units and...

See similar textbooks

Similar questions

Refer to Cornerstone Exercises 2.2 and 2.3. Next year, Pietro expects to produce 50,000 units and sell 49,300 units at a price of 12.50 each. Beginning inventory of finished goods is 42,500, and ending inventory of finished goods is expected to be 34,000. Total selling expense is projected at 26,000, and total administrative expense is projected at 134,000. Required: 1. Prepare an income statement in good form. Be sure to include the percent of sales column. 2. What if the cost of goods sold percentage for the past few years was 65 percent? Explain how management might react.
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 Annual demand Life cycle Target profit $ 1,900 84,000 units 1. Target Cost 2. Target Cost 3. Target Cost 5 years 22 percentage return on sales Required: 1. Compute the target cost of this product. 2. Compute the target cost if Majesty wants a 44 percent return on sales. 3. Compute the target cost if Majesty wants a 12 percent return on sales.
Amazing Company manufacturing Water purifier. The expected expenses of the product life cycle of mobile for the next three years are estimated as follows: Year-1 Year-2 Year-3 Total units manufactured 50,000 100,000 200,000 Batch per units 400 500 800 Price per mobile OMR 55 OMR 50 OMR 40 R&D Cost 50,000 75,000 Production cost: Variable cost per unit Variable cost per Batch Fixed cost Marketing cost: Variable cost per unit Fixed cost OMR 8 OMR 150 OMR 100,000 OMR 100,000 OMR 100,000 OMR 9 OMR 7 OMR 200 OMR 120 OMR 2.80 OMR 2.20 OMR 2.10 OMR 75,000 OMR 75,000 OMR 75,000 Distribution cost: Units produced per batch Variable cost per unit Variable cost per Batch 200 160 120 OMR 1.5 OMR 1.5 OMR 1.5 OMR 120 OMR 120 OMR 100 Fixed cost OMR 50,000 OMR 50,000 OMR 50,000 Customer service cost per unit OMR 2 OMR 1.5 OMR 1.5 Calculate the budgeted life cycle cost and profit of mobile for three years.
Amazing Company manufacturing Water purifier. The expected expenses of the product life cycle of mobile for the next three years are estimated as follows: Year-1 Year-2 Year-3 Total units manufactured 50,000 100,000 200,000 Batch per units 400 500 800 Price per mobile OMR 55 OMR 50 OMR 40 R&D Cost 500,000 75,000 Production cost: Variable cost per unit Variable cost per Batch Fixed cost OMR 9 OMR 200 OMR 100,000 OMR 8 OMR 150 OMR 100,000 OMR 7 OMR 120 OMR 100,000 Marketing cost: Variable cost per unit Fixed cost OMR 2.80 OMR 75,000 OMR 2.20 OMR 75,000 OMR 2.10 OMR 75,000 Distribution cost: Units produced per batch Variable cost per unit Variable cost per Batch Fixed cost Customer service cost per unit 200 OMR 1.5 OMR 120 OMR 50,000 OMR 2 160 OMR 1.5 OMR 120 OMR 50,000 OMR 1.5 120 OMR 1.5 OMR 100 OMR 50,000 OMR 1.5…
Amazing Company manufacturing Water purifier. The expected expenses of the product life cycle of mobile for the next three years are estimated as follows: Year-1 Year-2 Year-3 Total units manufactured 50,000 100,000 200,000 Batch per units 400 500 800 Price per mobile OMR 55 OMR 50 OMR 40 R&D Cost 500,000 75,000 Production cost: Variable cost per unit Variable cost per Batch Fixed cost OMR 9 OMR 200 OMR 100,000 OMR 100,000 OMR 100,000 OMR 8 OMR 150 OMR 7 OMR 120 Marketing cost: Variable cost per unit Fixed cost OMR 2.80 OMR 2.20 OMR 2.10 OMR 75,000 OMR 75,000 OMR 75,000 Distribution cost: Units produced per batch Variable cost per unit Variable cost per Batch 200 OMR 1.5 120 OMR 1.5 160 OMR 1.5 OMR 120 OMR 120 OMR 50,000 OMR 50,000 OMR 50,000 OMR 1.5 OMR 1.5 OMR 100 Fixed cost Customer service cost per unit OMR 2 Calculate the budgeted life cycle cost and profit of mobile for three уears.
Answer the following short problems: 1. Wergas, Inc. has determined the following for a given year: Economic order quantity Total cost to place purchase orders for the year Cost to place one purchase order Cost to carry one unit for 1 year What is Wergas' estimated annual usage in units? 5,000 units P 10,000 P 50 P4 2. Alilio Company is planning to build a new plant in Batangas City. The plant is expected to provide additional sales as follows: First Year Second Year Third Year P 2.0 million P2.5 million P 3.0 million (maximum capacity) The financial manager of Alilio estimates that for every peso of sales, P0.25 must be invested in current as sets. If all discounts are taken and bills are paid on time, accounts payable average P 0.04 per peso of sales. Other current liabilities, such as wages payable, typically average P0.05 per peso of sales. Required: a. Estimate the working capital investments required for the new plant in the l", 2nd & 3rd year of operations. b. How do these…
Required information You work for Bellevue Window Products. While performing an analysis for a new window product, you found a report from last year that provided the following information regarding the manufacture of a similar product: annual production rate = 40,000 units; selling price = $74 per unit; fixed production cost = $240,000 per year; variable production cost = $1,630,000 per year; and variable selling expenses = $89,000 per year. As a first cut, you decide to use this information to estimate the annual production rate that would generate a profit of $1,000,000 per year. The annual production rate is estimated to be units per year.
Absorption Costing Approach to Cost-Plus Pricing; Customer Latitude and Pricing Messina Company wants to use absorption cost-plus pricing to establish the selling price for a new product. The company plans to invest $650,000 in operating assets that provide the capacity to make 30,000 units. Its required return on investment (ROI) in its operating assets is 20%. Messina’s Accounting Department set a goal of producing and selling 20,000 units during the new product’s first year of availability. It also provided the following cost estimates for the new product: Required: 1. If the company plans to produce and sell 20,000 units, what is the absorption unit product cost for its new product? 2. At a planned sales volume of 20,000 units, what is the markup percentage on absorption cost for the new product? 3. Using absorption cost-plus pricing and assuming a planned sales volume of 20,000 units, what selling price would the company establish for its new product? 4. Using an absorption…
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…
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 Annual demand Life cycle Target profit $ 2,900 92,000 units years 1. Target Cost 2. Target Cost 3. Target Cost 5 27 percentage return on sales Required: 1. Compute the target cost of this product. 2. Compute the target cost if Majesty wants a 44 percent return on sales. 3. Compute the target cost if Majesty wants a 7 percent return on sales. 4
Answer the following short problems: Wergas, Inc. has determined the following for a given year: Economic order quantity 5,000 units Total cost to place purchase orders for the year P 10,000 Cost to place one purchase order P 50 Cost to carry one unit for 1 year P 4 What is Wergas’ estimated annual usage in units? Alilio Company is planning to build a new plant in Batangas City. The plant is expected to provide additional sales as follows: First Year P 2.0 million Second Year P 2.5 million Third Year P 3.0 million (maximum capacity) The financial manager of Alilio estimates that for every peso of sales, P0.25 must be invested in current assets. If all discounts are taken and bills are paid on time, accounts payable average P 0.04 per peso of sales. Other current liabilities, such as wages payable, typically average P0.05 per peso of sales. Required: Estimate the working capital investments required for the new plant in the 1st, 2nd& 3rd year of operations. How…
Tops Company sells Products D and E and has made the following estimates for the coming year: Product Unit Selling Price Unit Variable Cost Sales Mix D $30 $24 60% E 70 56 40 Fixed costs are estimated at $202,400. Determine (a) the estimated sales in units of the overall product necessary to reach the break-even point for the coming year, (b) the estimated number of units of each product necessary to be sold to reach the break-even point for the coming year, and (c) the estimated sales in units of the overall product necessary to realize an operating income of $119,600 for the coming year.