The document provides a target costing analysis for a garage door opener motor. It calculates that:
1) The market price for the motor is $26.
2) For the desired 20% margin, the acceptable target cost is $21.67.
3) The manager should take steps to reduce direct material, labor, and overhead costs to make producing the motor for less than the $21.67 target cost feasible.
The document provides a target costing analysis for a garage door opener motor. It calculates that:
1) The market price for the motor is $26.
2) For the desired 20% margin, the acceptable target cost is $21.67.
3) The manager should take steps to reduce direct material, labor, and overhead costs to make producing the motor for less than the $21.67 target cost feasible.
The document provides a target costing analysis for a garage door opener motor. It calculates that:
1) The market price for the motor is $26.
2) For the desired 20% margin, the acceptable target cost is $21.67.
3) The manager should take steps to reduce direct material, labor, and overhead costs to make producing the motor for less than the $21.67 target cost feasible.
The document provides a target costing analysis for a garage door opener motor. It calculates that:
1) The market price for the motor is $26.
2) For the desired 20% margin, the acceptable target cost is $21.67.
3) The manager should take steps to reduce direct material, labor, and overhead costs to make producing the motor for less than the $21.67 target cost feasible.
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WEI-HAN,HUANG
A2 using the contribution-margin technique, prepare an analysis similar to that in Exhibit 5-6 on page 187. Use four columns: without the special order, the effect of the special order (one column total and one column per unit), and totals with the special order.
Without With Special Effect of Special Order Special Order Order 3,000, 140,000 3,140,000 000 Units Total Per Unit Sales 15,900,00 16,510,40 0 610,400 4.36 0 Less variable expenses: - Manufacturing 5,850,000 322,000 2.30 6,172,000 Selling & administrative 1,050,000 1,050,000 Total variable expenses 6,900,000 322,000 2.30 7,222,000 Contribution margin 9,000,000 288,400 2.06 9,288,400 Less fixed expenses: - Manufacturing 3,600,000 3,600,000 Selling & administrative 3,300,000 3,300,000 Total fixed expenses 6,900,000 6,900,000 Operating income 2,100,000 288,400 2.06 2,388,400
By what percentage would operating income increase or decrease if the order had been accepted? Do you agree with the president’s decision? Why? - Operating income will increase by 14% - I disagree with the president’s decision - Because as I have idle capacity acceptance of the order will contribute by $ 288,400 to cover the fixed cost and the company will be better off accepting the special order B1
Indirect manufacturing costs (Schedules 1 and 2) -$1,794,000
Gross profit $7,006,000
Selling expenses:
Sales commissions -$470,000
Advertising -$430,000
Shipping expenses -$320,000
Administrative expenses:
Executive salaries -$100,000
Clerical salaries -$370,000
Operating income $5,316,000
Zealand Manufacturing Company
Schedules 1 and 2
Indirect Manufacturing Costs
For the Year Ended December 31, 2012
Schedule 1: Variable Costs
Cutting bits $53,000
Abrasives for machining $99,000
Indirect labor $950,000
Total Variable indirect manufacturing costs $1,102,000
Schedule 2: Fixed Costs
Factory supervisors' salaries $105,000
Factory methods research $42,000
Long-term rent, factory $85,000
Fire insurance on equipment $4,000
Property taxes on equipment $26,000
Depreciation on equipment $430,000
Factory superintendent's salary $31,000
Total Fixed manufacturing costs $692,000
Total indirect manufacturing costs $1,794,000
5-59 Target Costing
Answer 1
Under Cost-plus Pricing, the selling price is being arrived at by adding the desired profit margin to the Cost. In the instant case, the Product cost is $27 and desired margin is 20% above the cost. Thus in the instant case, under cost-plus pricing, Memphis Electrical will like to have profit of $5.4 ( 27 x 20%) and will like to charge selling price of $32.40. If I were the manager, I would not produce the motor, as company desired selling price is more than market selling price ( $26).
Answer -2 Under target costing, an entity accept the market price and adjust its cost, to achieve the desired profits. In the instant case, market selling price is $ 26. The Company will charge $ 26 for a garage-dooropener motor.
The desired margin is 20% on cost, which means, it is 1/6th of Sale price ( If cost price is 100, margin 20% of Cost, selling price 120, then margin on sale price is 20/120). Thus desired margin is $ 4.33 (26/6). The highest acceptable manufacturing cost for which Memphis would be willing to produce the motor is $ 21.67 ( 26-4.33) Answer-3
The steps managers take to try to make production of this product feasible could be :-
a) Effectively using the direct material to minimize wastage, so that direct material cost can be reduced
b) Increasing the labour efficiency, so that direct labour cost can be reduced
c) Try to reduce the factory overheads to the minimum possible extent
