GEVCO Limited: Target costing based on benchmark EVCO Limited is considering developing an electric version of the current model (D200), which is available in three different specifications. Current costs based on 100 cars per specification are as follows: Economy Standard Premium Material R8,115,990 R8,308,640 R10,506,110 Labour costs R3,442,500 R407,3250 R4,787,480 Machine costs (R3,354.00 per machine hour) R8,385,000 R11,739,000 R13,416,000 Overheads* R8,226,000* "Overheads are absorbed on a machine-hour basis. Machine assembly hours for the economy, standard system which means that they would like each and premium models are approximately 2.5 hours, specification to compete with an economy, standard 3.5 hours and 4 hours, respectively. and premium model for each of their competitors. The The board has decided that it would like to develop company has a target costing policy and they usually an electric version for each specification of the D200, aim for their selling price to be R10,000 cheaper than whilst still maintaining the current margin of 20 per the selling price of their competitors. cent of the selling price. They use a benchmarking The company has researched prices for the competing models in the market and these are summarised in the tables below: Alpha Beta Gamma Basic Standard Premium Basic Standard Premium Basic Standard Premium R300,000 R340,000 R380,000 1280 000 8330 000 9380,000 R324,560 R336,960 R345,960 Delta pullon Zeta Basic Standard Premium Basic Standard Premium Basic Standard Premium R350,000 R395,000 R440,000 R250,000 3285/000 R320,000 R301,500 R323,500 R345,500 lots Eta Standard Premium Basic Standard Premium Basic Standard Premium Basic R343,500 8403,500 9/76.900 $296 900 R316,900 R276,000 R291,000 R306,000 R283.500 Practical tasks create a decision board for the directors that shows the three models, but only display one Use a spreadsheet to complete the following tasks: make at a time and show the comparison of the 1 Calculate the current cost for all three costs, Including the decision that would be made specifications of the D200. The makes should be available on a dropdown 2 Calculate what the target cost would be, if GEVCO menu so the director can toggle between the were to make a car to compete with each of the different makes and see the differences reflected. nine competitors. Hint: Use data validation to highlight those models The board will only consider making a model that which will meet the boards' criteria. has a cost gap greater than R8,000 or below the cost of the D200, Use a formula to show which of Research and presentation the competitor models would be accepted by the Using PowerPoint, provide the following: board, showing the status as HIGHER or LOWER. 5 Present the models which you feel would be After viewing your calculations, the directors are acceptable to the board. concerned that there is too much information, & For each model, explain how you would close any To help streamline the decision making process, cost gaps