Data Table Value-Chain Function Research and development Design Manufacturing (50% outsourced to suppliers) Marketing Distribution Customer service Total Cost over Product Life $ 2,000,000 750,000 6,500,000 600,000 1,600,000 6,011,000 $ 17,461,000 Total cost over product life Print Done Better Buy Corporation uses target costing to aid in the final decision to release new products to production. A new product is being evaluated. Market research has surveyed the potential market for this product and believes that its unique features will generate a total demand over the product's life of 66,000 units at an average price of $390. The target costing team has members from market research, design, accounting, and production engineering departments. The team has worked closely with key customers and suppliers. A value analysis of the product has determined that the total cost for the various value-chain functions using the existing process technology are as follows: E (Click the icon to view the total cost data.) Management has a target contribution to profit percentage of 35% of sales. This contribution provides sufficient funds to cover corporate support costs, taxes, and a reasonable profit Read the requirements Requirement 1. Should the new product be released to production? Explain. Begin by calculating the estimated excess contribution to or deficiency in profit from releasing the new product. (Use a minus sign or parentheses for a deficiency in profit.) Estimated contribution to profit Desired (target) contribution to profit Excess contribution to (deficiency in) profit Requirement 2. Approximate of manufacturing costs for this product consists of materials and parts that are purchased from suppliers Key suppliers on the target-costing team have suggested process improvements that wil reduce supplier cost by Should the new product be released to production? Explain. Begin by calculating the revised estimated excess contribution to or deficiency in profit from releasing the new product under this scenario. (Use a minus sign or partheses for a deficiency in prott) Revised estimated contribution to profit Desired (target) contribution to prott Revsied excess contribution to deficiency in) profit Should the new product be released production? 115 Yes, the product should be released to production because its estimated contribution to proft is greater than the desired contribution to pront Requirement 3. New process technology can be purchased at a cost of that will reduce non outsourced manufacturing costs Assuming the supplier's process improvements from requirement 2) and new process technology are implemented, should the new product be released to production? Explain. Begin by calculating the revised estimated excess contribution to or deficiency in profit from releasing the new product under this scenario (Use a minus sign or parentheses for a deficiency in prott) Revised estimated contribution to profit Desired (target) contribution to profit Revsed excess contribution to detency in) profit Should the new product be released to production? Yes, the product should be released to production because its estimated contribution to profit is greater than the desired contribution to pront 2. Approximately 50% of manufacturing costs for this product consists of materials and parts that are purchased from suppliers. Key suppliers on the target-costing team have suggested process improvements that will reduce supplier cost by 40%. Should the new product be released to production? Explain. 3. New process technology can be purchased at a cost of $150,000 that will reduce non-outsourced manufacturing costs by 40%. Assuming the supplier's process improvements and new process technology are implemented, should the new product be released to production? Explain
