Target Costing Instant Image Inc. manufactures color laser printers. Model J20 presently sells for $460 and has a product cost of $230, as follows: Direct materials $175 Direct labor 40 Factory overhead 15 Total $230 It is estimated that the competitive selling price for color laser printers of this type will drop to $400 next year. Instant Image has established 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, rather than with screws. This will reduce the amount of direct labor by 15 minutes per unit. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $20 per unit. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Forty percent of the direct labor and 48% of the factory overhead are related to running injection molding machines. The direct labor rate is $30 per hour. a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained. $fill in the blank 1 per unit b. Determine the required cost reduction. $fill in the blank 2 per unit c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved. Do not round interim calculations but round your final answers to two decimal places. 1. Direct labor reduction $fill in the blank 3 per unit 2. Additional inspection $fill in the blank 4 per unit 3. Injection molding productivity improvement $fill in the blank 5 per unit Total savings $fill in the blank 6 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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Target Costing

Instant Image Inc. manufactures color laser printers. Model J20 presently sells for $460 and has a product cost of $230, as follows:

Direct materials	$175
Direct labor	40
Factory overhead	15
Total	$230

It is estimated that the competitive selling price for color laser printers of this type will drop to $400 next year. Instant Image has established 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, rather than with screws. This will reduce the amount of direct labor by 15 minutes per unit.
Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $20 per unit.
Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Forty percent of the direct labor and 48% of the factory overhead are related to running injection molding machines.

The direct labor rate is $30 per hour.

a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained.
$fill in the blank 1 per unit

b. Determine the required cost reduction.
$fill in the blank 2 per unit

c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved. Do not round interim calculations but round your final answers to two decimal places.

1. Direct labor reduction	$fill in the blank 3	per unit
2. Additional inspection	$fill in the blank 4	per unit
3. Injection molding productivity improvement	$fill in the blank 5	per unit
Total savings	$fill in the blank 6	per unit

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