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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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