11.5.6

Calgary Lumber Company incurs a cost of $382 per hundred board feet (hbf) in processing certain rough-cut lumber, which it sells for $550 per hbf. An alternative is to produce a finished-cut at a total processing cost of $526 per hbf, which can be sold for $758 per hbf.

a. Prepare a differential analysis dated March 15 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

Differential Analysis
Sell Rough-Cut (Alt. 1) or Process Further into Finished-Cut (Alt. 2)
March 15
	Sell Rough-Cut (Alternative 1)	Process Further into Finished-Cut (Alternative 2)	Differential Effects (Alternative 2)
Revenues, per 100 board ft.	$___	$____	$____
Costs, per 100 board ft.	____	____	___
Profit (Loss), per 100 board ft.	$___	$___	$___

Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $250 and has a product cost of $200, as follows:

Direct materials	$140
Direct labor	40
Factory overhead	20
Total	$200

It is estimated that the competitive selling price for color laser printers of this type will drop to $240 next year. Laser Cast has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost-reduction ideas:

1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 9 minutes per unit.
2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $5 per unit.
3. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 40% of the factory overhead are related to running injection molding machines.

The direct labor rate is $17 per hour.

a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained. Round your final answer to two decimal places $___

b. Determine the required cost reduction. Enter as a positive number. Round your final answer to two decimal places $___

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

1. Direct labor reduction	$___	per unit
2. Additional inspection	$___	per unit
3. Injection molding productivity improvement	$___	per unit
Total savings	$___	per unit