=+7-35 KK Target pricing, target cost and value engineering OBJECTIVES 1, 2, 3 Systematic Ltd manufactures component parts. One product, G16, has annual sales of 50000 units. Systematic Ltd sells G16 for

$40.60 per unit. Systematic Ltd has two direct cost categories (direct materials, direct manufacturing labour) and two activity-based indirect cost categories (engineering and testing). All R&D and design costs are included in the engineering cost category. There are no marketing, distribution or customer service costs. The cost driver for engineering is engineer-hours and the cost driver for testing is test-hours. Testing costs are variable costs. Engineering costs are fixed costs based on engineering capacity. Information on annual costs includes the following:

Chapter 7: Cost management, capacity costing and capacity management 295 M07_HORN3377_02_LT_C07.indd 295 2/09/13 3:41 PM Direct materials: $14.98 per unit Direct manufacturing labour: $15 per direct manufacturing labour-hour Engineering: $14 per engineer-hour (based on capacity of 25000 engineering-hours)

Testing: $12 per test-hour Each unit of G16 requires 0.5 direct manufacturing labour-hours to produce and 0.25 test-hours to test.

Required 1 Calculate the full cost per unit of G16 if Systematic Ltd produces 50000 units.