Question
I need the answer for the 3rd question, i have the answer for two question pls review the two answer as well. The following costs
I need the answer for the 3rd question, i have the answer for two question
pls review the two answer as well.
The following costs pertain to Pyramid Printing Company, a U.S. producer of retail inserts and magazines for July 2015, during which it will print 40,000,000 copies of a retail insert.
Pyramid Printing Company | Jul-15 |
Printing design and engineering costs | $100,000 |
Raw materials | 180,000 |
Direct labor | 120,000 |
Variable manufacturing overhead | 60,000 |
Factory insurance | 50,000 |
Depreciation machinery and facility | 125,000 |
Repairs and maintenance facility | 25,000 |
Selling, marketing and distribution expenses | 300,000 |
The company has a target cost proposed by a major customer of $5.00 per 100 copies. The expected gross margin is 60% of sales.
Requirements:
1. Determine whether the company is able to achieve its target cost per the schedule above and given the sales price indicated. Indicate whether it must employ value engineering.
2. Pyramids purchasing manager calls their paper supplier and negotiates a 30% price decrease for raw materials. Henry Russell, the companys sales manager, indicates that he will cut the selling, marketing, and distribution expenses in order to reach the required target cost, given the above. If the cost of raw materials decreases by 30%, how much must the selling, marketing, and distribution expenses decrease in order to meet the required target cost?
3. Summarize your findings by commenting on the analysis. What other considerations apply to target costing analysis?
Answer
1.
The details related to the actual cost are below:
Statement showing actual cost |
---|
Normal Production | 40,000,000 |
---|
Particulars | Cost Per Copy | Total Cost |
---|---|---|
Raw Materials | $0.005 | $180,000 |
Direct Labor | $0.003 | $120,000 |
Variable Manufacturing overhead | $0.002 | $60,000 |
Total Variable Cost | $0.009 | $360,000 |
Fixed Cost | ||
Factory insurance | $0.001 | $50,000 |
Repairs & Maintenance Facility | $0.001 | $25,000 |
Depreciation - Machine & Facility | $0.003 | $125,000 |
Printing Design and engineering Costs | $0.003 | $100,000 |
Selling and Marketing Costs | $0.008 | $300,000 |
Total Fixed Cost | $0.015 | $600,000 |
Total Cost | $0.024 | $960,000 |
Actual Cost @for 100 Copies | $2.40 |
Statement considering as per the Customers Proposal | ||
---|---|---|
Sales Price @per 100 copy | $5 | |
Estimated Cost @40% of the Sales | $2 | |
Actual Total Cost | $2.40 | |
Result | Target Cost not achieved |
Since the target cost has been exceeded, efforts are made to reduce the costs, so that the target cost can be achieved. Moreover, value engineering should be used as it will be beneficial in order to achieve the targeted cost.
2.
When the Raw materials are decreased by 30% then in such case the actual cost is 2.265 per 100 copies.
Statement showing actual cost (after considering the Change in the material) |
---|
Normal Production | 40000000 |
---|
Particulars | Cost per Copy | Total Cost |
---|---|---|
Raw Materials | $0.003 | $126,000 |
Direct Labor | $0.003 | $120,000 |
Variable Manufacturing Overhead | $0.002 | $60,000 |
Total Variable Cost | $0.008 | $306,000 |
Fixed Cost | ||
Factory Insurance | $0.001 | $50,000 |
Repairs & Maintenance Facility | $0.001 | $25,000 |
Depreciation - Machine & Facility | $0.003 | $125,000 |
Printing Design and engineering Costs | $0.003 | $100,000 |
Selling and Marketing Costs | $0.008 | $300,000 |
Total Fixed Cost | $0.015 | $600,000 |
Total Cost | $0.023 | $906,000 |
Actual Cost @for 100 Copies | $2.265 |
The total cost is $906,000 whereas the targeted cost is $800,000 where in the selling. Administrative and marketing costs are required to be reduced by $106,000 in order to achieve the targeted cost.
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