Hello I am looking for some help understanding how to answer and explain these questions. I am not sure about the proposal or other factors to consider for case 2. How do you calculate target cost per unit and decide the next step for management in case 3? Thank you!
Case #2 Anchor's Inn is a fine dining restaurant. Recently, the restaurant's owner, Megan, was approached by a company, NewLink Inc., with a proposal for a special order. NewLink is organizing their annual employee recognition event and would like to hold the event at Anchor's Inc. NewLink Inc. would need Anchor Inn to provide service for 200 of NewLinks' invitees. Considering this opportunity, Megan estimates that she could charge $90 per person for food, desert, and beverages, and estimates that it would cost the restaurant $40 per person for food and $20 per person for beverages. To accept the opportunity for NewLink, Megan would need to close the restaurant for other diners. Typically, Anchor's Inn would serve 220 people per evening. Each diner spends on average of $65 and, per person, it costs Anchor's Inn an estimated $24 for food and $15 for beverages. Since the number of people typically dining at Anchor's Inn is less than the number of diners proposed by NewLink, Megan would not need to hire additional staff to accept NewLink's proposal. Required (A) Based on financial considerations alone, should Megan accept NewLink's proposal? By how much would income increase or decrease if Megan accepted NewLink's proposal? (B) Before deciding whether to accept the NewLink's proposal, what other factors should Megan consider?Ennio Ltd. is designing a new product and management has decided to use a targeting costing approach. A competitor manufactures a comparable product that has a manufacturer suggested retail price (MRSP) of $3,200 per unit. To pursue this opportunity, Ennio Ltd. aims to earn a 22% profit on the new product. Required (A) What is the target cost per unit? (B) If the design proposed by Ennio Ltd.'s engineers exceeds the target cost computed in (A), what would be the next step for management at Ennio Ltd? Briefly discuss. (C) Using the internet, find a company that has used target costing. In a few paragraphs, discuss this company's experience with using target costing, answering questions such as "Why did the company adopt target costing?", " How did they implement target costing?" and "What was the end result?". [Note: Ensure that you use proper citations.]
