HORNGREN'S COST ACCT >IA<
16th Edition
ISBN: 9780136675464
Author: Datar
Publisher: PEARSON
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Chapter 13, Problem 13.37P
Value engineering, target pricing, and locked-in costs. Sylvan Creations designs, manufactures, and sells modern wood sculptures. Sandra Johnson is an artist for the company. Johnson has spent much of the past month working on the design of an intricate abstract piece. Jim Chase, product development manager, likes the design. However, he wants to make sure that the sculpture can be priced competitively. Ellen Cooper, Sylvan’s cost accountant, presents Chase with the following cost data for the expected production of 75 sculptures:
| Design cost | $10,000 |
| Direct materials | 80,000 |
| Direct manufacturing labor | 27,500 |
| Variable manufacturing overhead | 10,000 |
| Fixed manufacturing overhead | 42,500 |
| Fixed marketing costs | 17,500 |
- 1. Chase thinks that Sylvan Creations can successfully market each piece for $3,000. To earn the required return on capital, the company’s target operating income per unit is 20% of target price. Calculate the target full cost per unit of producing the 75 sculptures. Does the cost estimate Cooper developed meet Sylvan’s requirements? Is value engineering needed? What is the total target operating income for the 75 sculptures?
- 2. Chase believes that competition will require Sylvan to reduce the price of the sculpture to $2,800. Rather than using the highest-grade wood available, Sylvan could use standard grade wood and lower the cost of direct materials by 25%. This redesign will require an additional $1,500 of design cost. Will this design change allow Sylvan to earn its total target operating income on the 75 sculptures? Is the cost of wood a locked-in cost?
- 3. If the price of the sculpture is $2,800, what is the total amount Sylvan can spend on direct materials for the 75 sculptures to earn the total target operating income calculated in requirement 1. What is the target cost per sculpture?
- 4. What challenges might managers at Sylvan Creations encounter in achieving the target cost and how
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Value engineering, target pricing, and locked-in costs. Sylvan Creations designs, manufactures, and sells modern wood sculptures. Sandra Johnson is an artist for the company. Johnson has spent much of the past month working on the design of an intricate abstract piece. Jim Chase, product development manager, likes the design. However, he wants to make sure that the sculpture can be priced competitively. Ellen Cooper, Sylvan’s cost accountant, presents Chase with the following cost data for the expected production of 75 sculptures:
Mary Jones and Jack Smart have joined forces to start M&J Food Products, a processor of packaged shredded lettuce for institutional use. Jack has years of food processing experience, and Mary has extensive commercial food preparation experience. The process will consist of opening crates of lettuce and then sorting, washing, slicing, preserving, and finally packaging the prepared lettuce. Together, with help from vendors, they think they can adequately estimate demand, fixed costs, revenues, and variable cost per 5-pound bag of lettuce. They think a largely manual process will have monthly fixed cost of $50,000 and a variable cost of $2.50 per bag. They expect to sell 75,000 bags of lettuce per month. They expect to sell the shredded lettuce for $3.25 per 5-pound bag. Jack and Mary has been contacted by a vendor to consider a more mechanized process. This new process will have monthly fixed cost of $125,000 per month with a variable cost of $1.75 per bag. Based on the above…
Mary Jones and Jack Smart have joined forces to start M&J Food Products, a processor of packaged shredded lettuce for institutional use. Jack has years of food processing experience, and Mary has extensive commercial food preparation experience. The process will consist of opening crates of lettuce and then sorting, washing, slicing, preserving, and finally packaging the prepared lettuce. Together, with help from vendors, they think they can adequately estimate demand, fixed costs, revenues, and variable cost per 5-pound bag of lettuce. They think a largely manual process will have monthly fixed cost of $50,000 and a variable cost of $2.50 per bag. They expect to sell 75,000 bags of lettuce per month. They expect to sell the shredded lettuce for $3.25 per 5-pound bag. Jack and Mary has been contacted by a vendor to consider a more mechanized process. This new process will have monthly fixed cost of $125,000 per month with a variable cost of $1.75 per bag. Based on the above…
Chapter 13 Solutions
HORNGREN'S COST ACCT >IA<
Ch. 13 - What are the three major influences on pricing...Ch. 13 - Relevant costs for pricing decisions are full...Ch. 13 - Describe four purposes of cost allocation.Ch. 13 - How is activity-based costing useful for pricing...Ch. 13 - Describe two alternative approaches to long-run...Ch. 13 - What is a target cost per unit?Ch. 13 - Describe value engineering and its role in target...Ch. 13 - Give two examples of a value-added cost and two...Ch. 13 - It is not important for a company to distinguish...Ch. 13 - Prob. 13.10Q
Ch. 13 - Describe three alternative cost-plus pricing...Ch. 13 - Give two examples in which the difference in the...Ch. 13 - What is life-cycle budgeting?Ch. 13 - What are three benefits of using a product...Ch. 13 - Prob. 13.15QCh. 13 - Which of the following statements regarding price...Ch. 13 - Value-added, non-value-added costs. The Magill...Ch. 13 - Target operating income, value-added costs,...Ch. 13 - Target prices, target costs, activity-based...Ch. 13 - Target costs, effect of product-design changes on...Ch. 13 - Target costs, effect of process-design changes on...Ch. 13 - Cost-plus target return on investment pricing....Ch. 13 - Cost-plus, target pricing, working backward....Ch. 13 - Life-cycle budgeting and costing. Arnold...Ch. 13 - Considerations other than cost in pricing...Ch. 13 - Cost-plus, target pricing, working backward. The...Ch. 13 - Value engineering, target pricing, and target...Ch. 13 - Target service costs, value engineering,...Ch. 13 - Cost-plus, target return on investment pricing....Ch. 13 - Cost-plus, time and materials, ethics. C S...Ch. 13 - Cost-plus and market-based pricing. Georgia Temps,...Ch. 13 - Cost-plus and market-based pricing. (CMA, adapted)...Ch. 13 - Life-cycle costing. Maximum Metal Recycling and...Ch. 13 - Airline pricing, considerations other than cost in...Ch. 13 - Prob. 13.35PCh. 13 - Ethics and pricing. Instyle Interior Designs has...Ch. 13 - Value engineering, target pricing, and locked-in...
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