Babo Pencil Sharpener Company

Babo Pencil Sharpener Company designs and manufactures electric pencil sharpeners which they sell through college bookstores. Their customers have asked for a new less expensive model, expected to sell for $12 at the bookstores. Babo's product manager believes the bookstores can sell 20,000 units over the expected 2 year life of the product. The bookstores require a 25% gross margin. Design engineers indicate the design cost for the new sharpener will be $18,000. Selling and administration costs are expected to be 15% of Babo's selling price; Babo management expects an 12% pre-tax profit on all new products. The product manager receives approval to proceed with the design and contacts suppliers for the three components needed for the sharpener and receives first pass cost estimates as follows:

QuantityCost per QtyMaterialsBlades1$2.40Electronics1$1.05Casing1$1.65

The product manager works with manufacturing and determines each sharpener will take 3 minutes to assemble and test at a rate of $24.00 per hour for direct labor and manufacturing overhead. She also works with marketing to assess customer expectations of features for the new sharpener:

FeatureSurvey ScoreComponent ContributionFast sharpening950% Blades, 50% ElectronicsEasy to clean770% Casing, 30% BladesAttractive appearance5100% Casing

The target manufacturing cost for the new electric pencil sharpener is:

Group of answer choices

$6.57

$5.67

$6.75

$8.67

(Not a repeat question).Babo Pencil Sharpener Company

Babo Pencil Sharpener Company designs and manufactures electric pencil sharpeners which they sell through college bookstores. Their customers have asked for a new less expensive model, expected to sell for $12 at the bookstores. Babo's product manager believes the bookstores can sell 20,000 units over the expected 2-year life of the product. The bookstores require a 25% gross margin. Design engineers indicate the design cost for the new sharpener will be $18,000. Selling and administration costs are expected to be 15% of Babo's selling price; Babo management expects an 8% pre-tax profit on all new products. The product manager receives approval to proceed with the design and contacts suppliers for the three components needed for the sharpener and receives first pass cost estimates as follows:

QuantityCost per QtyMaterialsBlades1$2.40Electronics1$1.05Casing1$1.65

The product manager works with manufacturing and determines each sharpener will take 3 minutes to assemble and test at a rate of $24.00 per hour for direct labor and manufacturing overhead. She also works with marketing to assess customer expectations of features for the new sharpener:

FeatureSurvey ScoreComponent ContributionFast sharpening950% Blades, 50% ElectronicsEasy to clean770% Casing, 30% BladesAttractive appearance5100% Casing

The Value Index for the Blades is:

Group of answer choices

0.67

1.04

1.45

0.45