Target Costing Millennium Printers Inc. manufactures color laser printers. Model L-1819 presently sells for $375 and has a total product cost of $300, as follows: Direct materials $220 Direct labor 60 Factory overhead 20 Total $300 It is estimated that the competitive selling price for color laser printers of this type will drop to $360 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 $8 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 $25 per hour. a. Determine the target cost for Model L-1819 assuming that the historical markup on product cost is maintained. Round your answer to two decimal places. $fill in the blank 1 per unit b. Determine the required cost reduction. Enter as a positive number. Round your answer to two decimal places. $fill in the blank 2 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

Millennium Printers Inc. manufactures color laser printers. Model L-1819 presently sells for $375 and has a total product cost of $300, as follows:

Direct materials	$220
Direct labor	60
Factory overhead	20
Total	$300

It is estimated that the competitive selling price for color laser printers of this type will drop to $360 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 $8 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 $25 per hour.

a. Determine the target cost for Model L-1819 assuming that the historical markup on product cost is maintained. Round your answer to two decimal places.
$fill in the blank 1 per unit

b. Determine the required cost reduction. Enter as a positive number. Round your answer to two decimal places.
$fill in the blank 2 per unit

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