Chandler Corporation is currently producing several products, including both custom and standard designs. It has received requests for two new products: swimming pool shades and landscape trellises. It is considering whether to produce either or both of these products. Based on the projections in Exhibits 1 to 3 describing the current capacity and required capacity needs for the new products, complete the following requirements: at 1. Target Costing: a. Determine the target cost of making a pool shelter given the price and desired profit margin shown in Exhibit 2. b. Determine the target cost of making a trellis given the price and desired profit margin shown in Exhibit 2. 2. Activity-Based Costing (ABC) and Capacity: a. Using ABC, find the current activity rates based on practical capacity. b. Compute the cost of unused capacity using practical capacity rates. c. Compute the total and unit costs of making the full demand of pool shades, assuming Chandler bases its rates on practical capacity. Also, assume Chandler would make these products one at a time when time is available, so as to not delay any of the custom orders. nges ould rces d. Compute the total and unit costs of making the full demand of trellises, assuming Chandler bases its rates on practical capacity. Also, assume Chandler would make these products one at a time when time is available, so as to not delay any of the custom orders. e. Compute the total and unit costs of making the full demand of pool shades, assuming Chandler bases its rates on expected capacity (used capacity plus required capacity for the full demand of pool shades). Also assume Chandler would make these products one at a time when time is available, so as to not delay any of the custom orders. f. Compute the total and unit costs of making the full demand of trellises, assuming Chandler bases its rates on expected capacity (used capacity plus required capacity for the full demand of trellises). Also, assume Chandler would make these products one at a time when time is available, so as to not delay any of the custom orders. g When considering a decision to make the new products, would costs computed using practical capacity (2c and 2d) or expected capacity (2e and 2f) as the denominator provide better information to Chandler's management? Explain your answer. Exhibit 1 Resource Design/Drafting Engineering Fabrication Powder coating Scheduling General factory Existing Capacity Available and Used and Capacity Costs Current capacity and usage (annual) Purchased Cost Used Practical Capacity Cost Driver of Capacity Capacity 20,000 design hours $ 500,000.00 19,500 15,000 engineering hr $750,000.00 14,750 40,000 parts $ 30,000.00 39,000 400,000 square feet $ 1,800,000.00 210,000 750 job setups $ 756,000.00 640 80,000 machine hrs $ 2,400,000.00 64,000 Exhibit 2 Resource needs for potential new products Pool shade Trellis Cost Driver requirements requirements 30 4 Resource Design/Drafting Engineering Fabrication Powder coating Scheduling General factory 40 design hours engineering hrs parts square feet job setups machine hrs 20 2 22 170 1 10 1600 1 80 Selling price per unit Material cost per unit Pool shade 42,500.00 18,750.00 Trellis 4,300.00 700.00 Desired profit on sales Demand Pool shades Demand Trellises 120 60
