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 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. Evaluate the three engineering improvements to determine if the required cost reduction (drift) can be achieved. Enter all amounts as positive numbers and round to the nearest cent. 1. Calculate the dollar amount of the labor reduction. $_____ per unit 2. Calculate the net dollar amount of the additional inspection and direct materials reduction. $_ per unit 3. Calculate the dollar amount of the total injection molding improvement. $_ per unit Total savings from implementing all three engineering improvements is $_____per unit

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 19E

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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 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.

Evaluate the three engineering improvements to determine if the required cost reduction (drift) can be achieved. Enter all amounts as positive numbers and round to the nearest cent.

1. Calculate the dollar amount of the labor reduction.
$_________ per unit

2. Calculate the net dollar amount of the additional inspection and direct materials reduction.
$_________ per unit

3. Calculate the dollar amount of the total injection molding improvement.
$_________ per unit

Total savings from implementing all three engineering improvements is
$_________per unit

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