Cost Management

BE13-19 Market price=$50/unit; competitive pressure have reduced market price to $45.

Firm manufactures 10,000 of these per year at a cost of $38 per unit (including $22 fixed cost and $16 variable cost per unit). Other selling and administrative costs for the product are $8 per unit.

What is the firm's target cost for this product?

The firm's target cost can be calculated by subtracting the competitive price from the desired profit.

Since when the firm was previously operating, the desired profit was $4 per unit, if the firm were to continue trying to maintain that same profit, they would have to have a target cost of $41 (Competitive price 45 - desired profit $4).

If the firm was to modify the profit based upon the new competitive price and adjust the new profit accordingly, the profit desired would be $3.60. If $3.60 was the desired profit, the target cost would be $41.40.

BE13-27 Current product sells for $160; competitor offers it for $140. Parts cost $130 and company needs to reduce price to $140 to remain competitive. What is the target cost if Comdex desires a 25% profit on sales dollars?

Since target cost = Competitive price - desired profit

The competitive price is 140 and a 25% profit on sales dollars would be $35 per product sold.

Therefore, the target cost would be 140-35= 105. The company would have to reduce its parts cost by 25 dollars in order to meet this target cost.

E13-40 Determine the appropriate life cycle stage for each activity

Decline in sales: Marketing & Distribution/Customer Service

Advertising: Marketing and distribution

Boost in production: Manufacturing

Stabilized profits: Marketing & Distribution/Customer Service

Competitor's entrance into market: R&D OR Marketing & Distribution/Customer Service

Market research: Marketing & Distribution/Customer Service

Market saturation: Marketing & Distribution

Start production: Manufacturing

Product testing: R & D

Termination of product: All stages need to do something (R&D, Design, Manufacturing, Marketing & Distribution and Customer Service)

Large increase in sales: Manufacturing, Marketing and Distribution

P13-51 Theory of Constraints

REC-1 (A) REC-1 (B) REC-2 (B) REC-2 (C)

Finishing 6000 6000 2400 2400

Machining 8000 0 0 0

Assembly 0 3000 1800 900

Receiving 1000 2500 1500 0

Total 15000 11500 5700 3300

Price sold 450 450 600 600

Cost of Materials $6000 $15000 150 150

The best production plan for REC-2 would be to use Material C because it takes 2,400 less minutes than REC-2 B and costs the