E15.17 Target costing and kaizen costing improvements LOS QualTops manufactures two-tone polo shirts, usually white with a contrasting colour, which it sells for $14.50. The cost of the input components is provided below. The cost of dye is averaged across the range of dye colours Component quantities and costs per two-tone polo shirt Input Component Quantity per Cost per Component Cost Shirt Shirt Polycotton knit $6 per metre 1.25 metres material $ 7.50 Direct labour 0.25 hr $16 per hour $ 4.00 hours The company expects to sell 80 000 two-tone polo shirts uniformly throughout the year. The required profit margin is $2.50 for 20% net profit margin), which management needs to maintain for the coming 12 months This year, competition has increased and QualTops' major retailer customer has asked for prices to be reduced to meet the current market price of $10.00 offered by a new manufacturer. The management of Qual Tops argued for the current contract price of $14.50 to be maintained and pointed to its product quality and on-time delivery guarantee. However, management of QualTops was only successful in renewing the contract at $10.00 per two-tone polo shirt Required: 1 What will be the target cost needed to achieve the required lal profit margin in dollars, and (b) net profit margin percentage? Dye $0.25 per gram 2 grams $ 0.50 Total cost per two-tone polo shirt $12.00 2 E Based on the target profit calculated to achieve the required profit margin in dollars, how could QualTops decrease the cost of materials and labour to achieve this target cost? Specifically, is it possible to use kaizen costing to achieve this target cost to obtain the required profit per two-tone polo shirt? If not, why not? 1 ir a 3 E E15.17 Target costing and kaizen costing improvements LOS QualTops manufactures two-tone polo shirts, usually white with a contrasting colour, which it sells for $14.50. The cost of the input components is provided below. The cost of dye is averaged across the range of dye colours Component quantities and costs per two-tone polo shirt Input Component Quantity per Cost per Component Cost Shirt Shirt Polycotton knit $6 per metre 1.25 metres material $ 7.50 Direct labour 0.25 hr $16 per hour $ 4.00 hours The company expects to sell 80 000 two-tone polo shirts uniformly throughout the year. The required profit margin is $2.50 for 20% net profit margin), which management needs to maintain for the coming 12 months This year, competition has increased and QualTops' major retailer customer has asked for prices to be reduced to meet the current market price of $10.00 offered by a new manufacturer. The management of Qual Tops argued for the current contract price of $14.50 to be maintained and pointed to its product quality and on-time delivery guarantee. However, management of QualTops was only successful in renewing the contract at $10.00 per two-tone polo shirt Required: 1 What will be the target cost needed to achieve the required lal profit margin in dollars, and (b) net profit margin percentage? Dye $0.25 per gram 2 grams $ 0.50 Total cost per two-tone polo shirt $12.00 2 E Based on the target profit calculated to achieve the required profit margin in dollars, how could QualTops decrease the cost of materials and labour to achieve this target cost? Specifically, is it possible to use kaizen costing to achieve this target cost to obtain the required profit per two-tone polo shirt? If not, why not? 1 ir a 3 E
