I only need everything that is blank or has an "X" by it answered. Thank you!

******Please ignore the first 2 pictures. They are unclear and I added better pictures above this, but couldn't get rid if those. Also ignore the 3 pictures before those new ones I posted. They are also blurry but I posted new pictures below.*****

Ing the Connection Chapters 11.1! Calculator Pando Pharmaceuticals is an affliate of the German based Hesenberg Corporation, which employs 40,000 worldwide. Zando's St. Louis facity houses the US, corporate headquarters and Research and Development (RAD). It produces 30 products, using 28 dfferent batch processes. The facility has 2,000 employees on ste. In recent years, ando's probably has suffered, which can be attributed to increased competition, customer distinction, and regulatory pressures. Luis Alvarado, president of Zando, called a meeting to consider ways to worove profitability. He labeled the meeting a strategic planning session and invited the following officers: Kathy shorts, veronmental manager; Troy Lewis, head of RAD; Joh Mirwa, vicepresident of production and Larry Sower, vice president of Finance and Doreen Savara, marketing vice president Luis "You all have received the quarterly financial reports for the last two years. The trends are negative. We are losing market share, profits are decreasing, and our cos em to be increasing. We need to take actions to increase sales and reduce costs, and we need to do so a uckly as possible even our research strength, it seems to me that our best bet is to grow revenues by introducing new products with proprietary nghts. As far as costs are concerned, we need to improve our performance on that dension as well Lower per unit costs for new and existing products are needed. Any suggestions?" Truy: "For our products, our ability to control costs redes development-my -rather than manufacturing. We probably need to pay more attention to product and process design issues to ensure a reasonably level per-unit cost. Revenues are also affected in this stage. Once we patentar the deck begins to ack, and we need to reduce time to marketincantly reducing time to market will allow us to generate revenues for a longer period of time than we are currently experiencing it would be held we could reduce the ele time for product development. Both actions we increase Finally, we can increase revenus by increasing the volume of new Johnny "There a lot of me to the servation that cost reduction oportunities reside mostly in product development. Once a drug proved, provaliludes the manufacturing process. Any future changes in the manufacturing process ra pproval from the US Food and Drug Administration because of this, we have bee n local, to engage in process improvement or reengineering. However, I wonder we shouldn't reconde this longstanding policy. Some of the quality problems we have could be corrected by changing some of our existing process, and the costs saved may easily exceed any cast incurred from seeking FDA approval think our quality is releast 15 percent of sales. That's a lot of oportunity for improvement Kathy agree that cost reduction both in the product development a nd the manufacturing stage should be a key strate theme. The m omental are also offers some very good opportunities. A recent pollution prevention act passed by the stature resues that we calculate the costs of enig hazardous substances for each process. This was the incentive we needed to begin developing an envwo tal cost management system. The results for indicate that wronmental costs are much more than we realized. They are estimated to be in the range of 20 to 30 percent of total operating costs. Environmental costs can be reduced by such things as computer chemical story nating the use of chlorated solvents and other hazardous materialsreducing our use of virgin foodstacks, and redesigning process and products so that we can reduce to reside release. We can really have a positive environmental impact while simultaneously reducing costs more on is pand to environmental d e product development." Doreenike what I am hearing because I think that also affects our ability to increase market share and revenues. For example, environmental impact is one of our major concerns. Some read pharmacy chains pay eing the Connection Chapter 11-1 Calculator parti tion to green products, and how were coming Ou t d o oroved that mo other important matter We have had to recall two batches of products during the past two years due to poor quality, and this has hurtoumage more than the of problems will save a lot of product image and r e s torang customer action and market share." strar share. Quality is proving the promises to avoid these and Luis "We started with the need to improve financial performance by increasing revenue and redong costs. So w e have some veryoned o n the where these two objectives, but I have some concerns to have the talent and capabilities to improve quality and environmental performance Troy.de your professionals really understand what they need to do to improve process and product designs so that we can see the desired quality and environmental improvements , how can we reduce the eye ime for products and the time to market once patented Trey let me answer those questions in order First, we probably we g the understanding on the design s . We will need to do some rang to help our research scientists and chemical engineers understand the consequences. We may need to hire a couple of professionals who have experience in dealing with these issue. Second, we may need to make cycle time and time to market significant performance measures and reward our people for actions that reduce those measures. Our employees need to align the interes with those of the company, we can achieve this, we shoulsee more revenue produced per employee." Luis God. Now, Johnny, tell us about production and quality. Do out maacturing engineers and production workers need help with environmental and quality issues Johnny: "Without question training will be needed. Moreover, I really need to hire a couple of quality engineers." Kathy so think that we need an environmental engineer with experience in pharmaceutical manufacturing processes." Luis "Good. We certainly shouldn't gnore the necessary wrastructure to wout the needed changes Larry you have been relatively , what do you think about all this? Do you have any suggestions? Larry structure is important. If this is allong to work, timely and accurate information will be needed. It is hard to design products and processes without being cant without providing the night ind of cost Wormation we are in the process of revamping the cost management formations so that activity based and so that we provides and mental co mmation ther ing to the comments made here might be sugest that we need a rec e nt wstem that can be used to the rest of our employees with our moment o e need to know what tant that the important factors begered, that they we going to be a d d e d based on these factors. Finally, I would encourage the use of getting to manage costs ur product development. The younderstand the portance of good information, the y are to products currently under development. These products will use the same process, w here wp. The data were Making the Connection Chapters 11-1! Calculator Resource Module (Projected General Ledger Costs of Manufacturing Process Associated with the Two Products) Materials $2,000,000 Salaries and wages 1,000,000 Energy 500,000 License fee (environmental) 200,000 Environmental fines Depreciation, pollution control equipment 400,000 100,000 $4,200,000 Activity Module Resource Driver (Percentage Usage) Fines Supervising process* 0 % 0 Setting up Blending chemicals Producing waste Materials 0 % 3 80 10 6 0 0 Labor 10 % 20 40 8 12 7 0 Energy 0 % 14 30 10 15 6 0 Fees 0 % 0 0 0 40 0 60 Disposing of hazardous waste 0 0 70 0 30 Inspecting products Releasing air contaminants Operating pollution control equipment 1 3 25 0 0 100 % 100 % 100 % 100 % 100 % *Secondary activity whose costs are assigned to primary activities in proportion to the labor time used. Cost Object Module (Products and Projected Activity Usage) Cost Objects Antibiotic XK1 Antibiotic XK5 Expected output (pounds) 50,000 50,000 Setup hours 7,000 Direct labor hours (blending) 12,000 24,000 8,000 16,000 Pounds of waste 2,000 Pounds of hazardous waste 5,000 1,000 Hours of inspection 3,000 500 Tons of air contaminants 4.5 0.5 Machine hours (pollution control) 2,000 500 List of Activity Drivers Activity Drivers Activity Capacity Setup hours Direct labor hours (blending) 20,000 40,000 * Pounds of waste 10,000 * Pounds of hazardous waste 8,000 Hours of inspection 4,000 Tons of air contaminants 5 * Machine hours (pollution control) 3,000 *Capacity is flexible (i.e., acquired as needed, and always matches usage). Capacity for other activities is acquired in advance of usage. For example, setups are acquired in units (steps) of 950 hours. Projected usage for setups equals practical capacity. Making the Connection Chapters 11-1! Calculator Cost of all activities: Activity Cost Assigned Supervising process 100 Setting up 360,000 Blending chemicals 2,150,000 Producing waste 330,000 Disposing of hazardous waste 675,000 Inspecting products 100,000 Releasing air contaminants 240,000 Operating pollution control equipment 42,000,000 Primary activity costs: Setting up 360,000 Blending chemicals 2,150,000 Producing waste 330,000 Disposing of hazardous waste 675,000 Inspecting products 100,000 Releasing air contaminants 240,000 Operating pollution control equipment 175,000 5a. Calculate the cost per unit for each of the proposed products using primary activity rates. Round your answers to two decimal places Activity rates: Setting up 17.61 per setup Blending chemicals 54.36 per DH Producing waste 33.89 per pound Disposing of hazardous waste 16.04 per pound Inspecting products 26.94 Xper insp.hu Releasing air contaminants 48 Xperton Operating pollution control equipments 2.78 x per 5b. Calculate the environmental cost per and the quality couper What does this you what the r ive d r y of the products Round your answers to the deal places A luu v . Antibiotic XKS X 1.13 Environmental cost per unit Quality cost per unit 16.64 7.04 163 6. Following Larry wu tion, deded to use target conting to respectively tus has indicated that any new product should earn a are r enew product profitability. Based on analyses by us and Doreen, the target prices for XK and profequal to 20 percent of sales. Based on this information, answer the following per pound and 35 per pound a. What is the target cost for each product? Antibiotic XKI Antibiotic XKS Target cost 40 2. Gven the woman what should be do might could be given on XKS , and more development work is needed for XK before At this point, the XXI product fails to meet the target cost, while XS much lower than the product is approved. bl. Suppose Doreen indicates that sales for each product can be increased by 50 percent the calculate the new target costs. Round your answer to two decimal places suming the same target profit (Luis wants the original target profiter pound manned). Att X A XKS b2. Calculate the unit cost at the 50.000 level. Round your awwers to two decimal places | | | | | | | | | | K . Unit costs de continue they 4. Calculate the effect on total profits under a scenario whe wolume) Projected profit No elimination scenario Elimination scenario Making the Connection Chapters 11-1! Zando Pharmaceuticals is an affiliate of the German-based Heisenberg Corporation, which employs 40,000 worldwide. Zando's St. Louis facility houses the U.S. corporate headquarters and Research and Development (R&D). It produces 30 products, using 28 different batch processes. The facility has 2,000 employees on-site. In recent years, Zando's profitability has suffered, which can be attributed to increased competition, customer dissatisfaction, and regulatory pressures. Luis Alvarado, president of Zando, called a meeting to consider ways to improve profitability. He labeled the meeting a strategic planning session and invited the following officers: Kathy Shorts, environmental manager: Troy Lewis, head of R&D; Johnny Mizukawa, vice president of production and quality; Larry Sower, vice president of finance; and Doreen Savara, marketing vice president. Luis: "You all have received the quarterly financial reports for the last two years. The trends are negative. We are losing market share, profits are decreasing, and our costs seem to be increasing. We need to take actions to increase sales and reduce costs, and we need to do so as quickly as possible. Given our research strengths, it seems to me that our best bet is to grow revenues by introducing new products with proprietary rights. As far as costs are concerned, we need to improve our performance on that dimerkion as well. Lower per-unit costs for new and existing products are needed. Any suggestions?" Troy: "For our products, our ability to control costs resides in development-my area-rather than manufacturing. We probably need to pay more attention to product and process design issues to ensure a reasonably level per unit cost. Revenues are also affected in this stage. Once we patent a drug, the clock begins to tick, and we need to reduce time to market. Significantly, reducing time to market will allow us to generate revenues for a longer period of time than we are currently experiencing. It would also be helpful if we could reduce the cycle time for product development. Both actions would increase revenues. Finally, we can increase revenues by increasing the volume of new products, Johnny: "There is a lot of merit to the observation that cost reduction opportunities reside mostly in product development. Johnny: "There is a lot of merit to the observation that cost reduction opportunities reside mostly in product development. Once a drug is approved, its approval includes the manufacturing process. Any future changes in the manufacturing process require approval from the U.S. Food and Drug Administration. Because of this, we have been reluctant, historically, to engage in process improvement or reengineering. However, I wonder if we shouldn't reconsider this longstanding policy. Some of the quality problems we have could be corrected by changing some of our existing processes, and the costs saved may easily exceed any cost incurred from seeking FDA approval. I think our quality costs are at least 15 percent of sales. That's a lot of opportunity for improvement." Kathy: "I agree that cost reduction -- both in the product development stage and the manufacturing stage--should be a key strategic theme. The environmental area also offers some very good opportunities. A recent pollution prevention act passed by the legislature requires that we calculate the costs of generating hazardous substances for each process. This act was the incentive we needed to begin developing an environmental cost management system. The results so far indicate that environmental costs are much more than we realized. They are estimated to be in the range of 20 to 30 percent of total operating costs. Environmental costs can be reduced by such things as computerizing chemical inventory eliminating the use of chlorinated solvents and other hazardous materials, reducing our use of virgin feedstocks, and redesigning processes and products so that we can reduce toxic residue release. We can really have a positive environmental impact while simultaneously reducing costs if more attention is paid to environmental issues during product development." Doreen: "I like what I am hearing because I think that it also affects our ability to increase market share and revenues. For example, environmental impact is one of our major concerns. Some retail pharmacy chains pay particular attention to green products, and right now we are not competing well. Our environmental image is negative and needs to be improved. I am convinced that doing so will allow us to increase market share. Quality is another important matter. We have had to recall two batches of products during the past two years due to poor quality, and this has hurt our image more than the environmental issue. Improving the processes to avoid these kinds of problems will save us a lot of grief. Product image and reputation are essential to increasing customer satisfaction and market share." Luis: "We started with the need to improve financial performance by increasing revenues and reducing costs. So far, we have some very good suggestions to help achieve these two objectives, but I have some concerns. First, do we have the talent and capabilities to improve quality and environmental performance? Troy, do your professionals really understand what they need to do to improve process and product designs so that we can see the desired quality and environmental improvements? Also, how can we reduce the cycle time for products and the time to market once patented?" Troy: "Let me answer those questions in order. First, we probably are lacking the understanding on the design issues. We will need to do some training to help our research scientists and chemical engineers understand the consequences. We may need to hire a couple of professionals who have experience in dealing with these issues. Second, we may need to make cycle time and time to market significant performance measures and reward our people for actions that reduce those measures. Our employees need to align their interests with those of the company. If we can achieve this, we should see more revenue produced per employee." Luis: "Good. Now, Johnny, tell us about production and quality. Do our manufacturing engineers and production workers need help with environmental and quality issues?" Johnny: "Without question, training will be needed. Moreover, I really need to hire a couple of quality engineers." Kathy: "I also think that we need an environmental engineer with experience in pharmaceutical manufacturing processes." Luis: "Good. We certainly shouldn't ignore the necessary infrastructure to bring about the needed changes. Larry, you have been relatively quiet, what do you think about all this? Do you have any suggestions? Larry: "Infrastructure is important. If this is all going to work, timely and accurate information will be needed. It is hard to design products and processes with cost being a significant issue without providing the right kind of cost information. We are in the process of revamping the cost management information system so that it is activity based and so that we can provide quality and environmental cost information. After listening to the comments made here, I might also suggest that we need a strategic measurement system that can be used to align the interests of our employees with our improvement strategy. People need to know what is important, that the important factors are being measured, and that they are going to be evaluated and rewarded based on these factors. Finally, I would encourage the use of target costing to help manage costs during product development. To help you all understand the importance of good information, I have assembled some activity data relating to two new products currently under development. These two products will use the same process, using different setups. The data are organized into resource, activity, and cost object modules with an accompanying list of activity drivers to facilitate the use of an ABC software package recently acquired by Zando." Making the Connection Chapters 11-19 5a. Calculate the cost per unit for each of the proposed products using primary activity rates. Round your answers to two decimal places. Activity rates: Setting up $ 17.61 per setup hr. Blending chemicals 54.86 per DLH Producing waste 33.89 per pound Disposing of hazardous waste 86.04 per pound Inspecting products 26.94 X per insp. hr. Releasing air contaminants 48 X per ton Operating pollution control equipment $ 92.78 X per MHr 5b. Calculate the environmental cost per unit and the quality cost per unit. What does this tell you about the relative desirability of the two products? Round your answers to two decimal places. Antibiotic XK1 Antibiotic XK5 Environmental cost per unit $ 16.64 X $ 3.13 X Quality cost per unit $ 7.04 $ 1.63 6. Following Larry's suggestion, Luis decided to use target costing to help improve new product profitability. Based on analyses by Luis and Doreen, the target prices for XK1 and XK5 are $50 per pound and $35 per pound, respectively. Luis has indicated that any new product should earn a gross profit equal to 20 percent of sales. Based on this information, answer the following: a. What is the target cost for each product? Antibiotic XK1 40 Antibiotic XK5 28 Target cost $ $ a2. Given this information, what should be done? At this point, the XKI product fails to meet the target cost, while XK5 is much lower than its target cost. Thus, a green light could be given on XK5 , and more development work is needed for XK1 before the product is approved. 51. Suppose Doreen indicates that sales for each product can be increased by 50 percent if the selling price is lowered by 10 percent. Assuming the same target profit (Luis wants the original target profit per pound maintained), calculate the new target costs. Round your answers to two decimal places. Antibiotic XK1 Antibiotic XK5 New Target cost $ b2. Calculate the unit cost at the 50,000-unit level. Round your answers to two decimal places, b2. Calculate the unit cost at the 50,000-unit level. Round your answers to two decimal places. Antibiotic XK1 Antibiotic XK5 Unit cost $ b3. If all non-value-added costs were eliminated, could the target be met? Yes b4. Calculate the effect on total profits under a scenario where non-value-added costs are not eliminated versus a scenario where all non-value-added costs are eliminated. (Include in this analysis any possible increase in sales volume.) Projected profit No elimination scenario $ Elimination scenario Feedback Ing the Connection Chapters 11.1! Calculator Pando Pharmaceuticals is an affliate of the German based Hesenberg Corporation, which employs 40,000 worldwide. Zando's St. Louis facity houses the US, corporate headquarters and Research and Development (RAD). It produces 30 products, using 28 dfferent batch processes. The facility has 2,000 employees on ste. In recent years, ando's probably has suffered, which can be attributed to increased competition, customer distinction, and regulatory pressures. Luis Alvarado, president of Zando, called a meeting to consider ways to worove profitability. He labeled the meeting a strategic planning session and invited the following officers: Kathy shorts, veronmental manager; Troy Lewis, head of RAD; Joh Mirwa, vicepresident of production and Larry Sower, vice president of Finance and Doreen Savara, marketing vice president Luis "You all have received the quarterly financial reports for the last two years. The trends are negative. We are losing market share, profits are decreasing, and our cos em to be increasing. We need to take actions to increase sales and reduce costs, and we need to do so a uckly as possible even our research strength, it seems to me that our best bet is to grow revenues by introducing new products with proprietary nghts. As far as costs are concerned, we need to improve our performance on that dension as well Lower per unit costs for new and existing products are needed. Any suggestions?" Truy: "For our products, our ability to control costs redes development-my -rather than manufacturing. We probably need to pay more attention to product and process design issues to ensure a reasonably level per-unit cost. Revenues are also affected in this stage. Once we patentar the deck begins to ack, and we need to reduce time to marketincantly reducing time to market will allow us to generate revenues for a longer period of time than we are currently experiencing it would be held we could reduce the ele time for product development. Both actions we increase Finally, we can increase revenus by increasing the volume of new Johnny "There a lot of me to the servation that cost reduction oportunities reside mostly in product development. Once a drug proved, provaliludes the manufacturing process. Any future changes in the manufacturing process ra pproval from the US Food and Drug Administration because of this, we have bee n local, to engage in process improvement or reengineering. However, I wonder we shouldn't reconde this longstanding policy. Some of the quality problems we have could be corrected by changing some of our existing process, and the costs saved may easily exceed any cast incurred from seeking FDA approval think our quality is releast 15 percent of sales. That's a lot of oportunity for improvement Kathy agree that cost reduction both in the product development a nd the manufacturing stage should be a key strate theme. The m omental are also offers some very good opportunities. A recent pollution prevention act passed by the stature resues that we calculate the costs of enig hazardous substances for each process. This was the incentive we needed to begin developing an envwo tal cost management system. The results for indicate that wronmental costs are much more than we realized. They are estimated to be in the range of 20 to 30 percent of total operating costs. Environmental costs can be reduced by such things as computer chemical story nating the use of chlorated solvents and other hazardous materialsreducing our use of virgin foodstacks, and redesigning process and products so that we can reduce to reside release. We can really have a positive environmental impact while simultaneously reducing costs more on is pand to environmental d e product development." Doreenike what I am hearing because I think that also affects our ability to increase market share and revenues. For example, environmental impact is one of our major concerns. Some read pharmacy chains pay eing the Connection Chapter 11-1 Calculator parti tion to green products, and how were coming Ou t d o oroved that mo other important matter We have had to recall two batches of products during the past two years due to poor quality, and this has hurtoumage more than the of problems will save a lot of product image and r e s torang customer action and market share." strar share. Quality is proving the promises to avoid these and Luis "We started with the need to improve financial performance by increasing revenue and redong costs. So w e have some veryoned o n the where these two objectives, but I have some concerns to have the talent and capabilities to improve quality and environmental performance Troy.de your professionals really understand what they need to do to improve process and product designs so that we can see the desired quality and environmental improvements , how can we reduce the eye ime for products and the time to market once patented Trey let me answer those questions in order First, we probably we g the understanding on the design s . We will need to do some rang to help our research scientists and chemical engineers understand the consequences. We may need to hire a couple of professionals who have experience in dealing with these issue. Second, we may need to make cycle time and time to market significant performance measures and reward our people for actions that reduce those measures. Our employees need to align the interes with those of the company, we can achieve this, we shoulsee more revenue produced per employee." Luis God. Now, Johnny, tell us about production and quality. Do out maacturing engineers and production workers need help with environmental and quality issues Johnny: "Without question training will be needed. Moreover, I really need to hire a couple of quality engineers." Kathy so think that we need an environmental engineer with experience in pharmaceutical manufacturing processes." Luis "Good. We certainly shouldn't gnore the necessary wrastructure to wout the needed changes Larry you have been relatively , what do you think about all this? Do you have any suggestions? Larry structure is important. If this is allong to work, timely and accurate information will be needed. It is hard to design products and processes without being cant without providing the night ind of cost Wormation we are in the process of revamping the cost management formations so that activity based and so that we provides and mental co mmation ther ing to the comments made here might be sugest that we need a rec e nt wstem that can be used to the rest of our employees with our moment o e need to know what tant that the important factors begered, that they we going to be a d d e d based on these factors. Finally, I would encourage the use of getting to manage costs ur product development. The younderstand the portance of good information, the y are to products currently under development. These products will use the same process, w here wp. The data were Making the Connection Chapters 11-1! Calculator Resource Module (Projected General Ledger Costs of Manufacturing Process Associated with the Two Products) Materials $2,000,000 Salaries and wages 1,000,000 Energy 500,000 License fee (environmental) 200,000 Environmental fines Depreciation, pollution control equipment 400,000 100,000 $4,200,000 Activity Module Resource Driver (Percentage Usage) Fines Supervising process* 0 % 0 Setting up Blending chemicals Producing waste Materials 0 % 3 80 10 6 0 0 Labor 10 % 20 40 8 12 7 0 Energy 0 % 14 30 10 15 6 0 Fees 0 % 0 0 0 40 0 60 Disposing of hazardous waste 0 0 70 0 30 Inspecting products Releasing air contaminants Operating pollution control equipment 1 3 25 0 0 100 % 100 % 100 % 100 % 100 % *Secondary activity whose costs are assigned to primary activities in proportion to the labor time used. Cost Object Module (Products and Projected Activity Usage) Cost Objects Antibiotic XK1 Antibiotic XK5 Expected output (pounds) 50,000 50,000 Setup hours 7,000 Direct labor hours (blending) 12,000 24,000 8,000 16,000 Pounds of waste 2,000 Pounds of hazardous waste 5,000 1,000 Hours of inspection 3,000 500 Tons of air contaminants 4.5 0.5 Machine hours (pollution control) 2,000 500 List of Activity Drivers Activity Drivers Activity Capacity Setup hours Direct labor hours (blending) 20,000 40,000 * Pounds of waste 10,000 * Pounds of hazardous waste 8,000 Hours of inspection 4,000 Tons of air contaminants 5 * Machine hours (pollution control) 3,000 *Capacity is flexible (i.e., acquired as needed, and always matches usage). Capacity for other activities is acquired in advance of usage. For example, setups are acquired in units (steps) of 950 hours. Projected usage for setups equals practical capacity. Making the Connection Chapters 11-1! Calculator Cost of all activities: Activity Cost Assigned Supervising process 100 Setting up 360,000 Blending chemicals 2,150,000 Producing waste 330,000 Disposing of hazardous waste 675,000 Inspecting products 100,000 Releasing air contaminants 240,000 Operating pollution control equipment 42,000,000 Primary activity costs: Setting up 360,000 Blending chemicals 2,150,000 Producing waste 330,000 Disposing of hazardous waste 675,000 Inspecting products 100,000 Releasing air contaminants 240,000 Operating pollution control equipment 175,000 5a. Calculate the cost per unit for each of the proposed products using primary activity rates. Round your answers to two decimal places Activity rates: Setting up 17.61 per setup Blending chemicals 54.36 per DH Producing waste 33.89 per pound Disposing of hazardous waste 16.04 per pound Inspecting products 26.94 Xper insp.hu Releasing air contaminants 48 Xperton Operating pollution control equipments 2.78 x per 5b. Calculate the environmental cost per and the quality couper What does this you what the r ive d r y of the products Round your answers to the deal places A luu v . Antibiotic XKS X 1.13 Environmental cost per unit Quality cost per unit 16.64 7.04 163 6. Following Larry wu tion, deded to use target conting to respectively tus has indicated that any new product should earn a are r enew product profitability. Based on analyses by us and Doreen, the target prices for XK and profequal to 20 percent of sales. Based on this information, answer the following per pound and 35 per pound a. What is the target cost for each product? Antibiotic XKI Antibiotic XKS Target cost 40 2. Gven the woman what should be do might could be given on XKS , and more development work is needed for XK before At this point, the XXI product fails to meet the target cost, while XS much lower than the product is approved. bl. Suppose Doreen indicates that sales for each product can be increased by 50 percent the calculate the new target costs. Round your answer to two decimal places suming the same target profit (Luis wants the original target profiter pound manned). Att X A XKS b2. Calculate the unit cost at the 50.000 level. Round your awwers to two decimal places | | | | | | | | | | K . Unit costs de continue they 4. Calculate the effect on total profits under a scenario whe wolume) Projected profit No elimination scenario Elimination scenario Making the Connection Chapters 11-1! Zando Pharmaceuticals is an affiliate of the German-based Heisenberg Corporation, which employs 40,000 worldwide. Zando's St. Louis facility houses the U.S. corporate headquarters and Research and Development (R&D). It produces 30 products, using 28 different batch processes. The facility has 2,000 employees on-site. In recent years, Zando's profitability has suffered, which can be attributed to increased competition, customer dissatisfaction, and regulatory pressures. Luis Alvarado, president of Zando, called a meeting to consider ways to improve profitability. He labeled the meeting a strategic planning session and invited the following officers: Kathy Shorts, environmental manager: Troy Lewis, head of R&D; Johnny Mizukawa, vice president of production and quality; Larry Sower, vice president of finance; and Doreen Savara, marketing vice president. Luis: "You all have received the quarterly financial reports for the last two years. The trends are negative. We are losing market share, profits are decreasing, and our costs seem to be increasing. We need to take actions to increase sales and reduce costs, and we need to do so as quickly as possible. Given our research strengths, it seems to me that our best bet is to grow revenues by introducing new products with proprietary rights. As far as costs are concerned, we need to improve our performance on that dimerkion as well. Lower per-unit costs for new and existing products are needed. Any suggestions?" Troy: "For our products, our ability to control costs resides in development-my area-rather than manufacturing. We probably need to pay more attention to product and process design issues to ensure a reasonably level per unit cost. Revenues are also affected in this stage. Once we patent a drug, the clock begins to tick, and we need to reduce time to market. Significantly, reducing time to market will allow us to generate revenues for a longer period of time than we are currently experiencing. It would also be helpful if we could reduce the cycle time for product development. Both actions would increase revenues. Finally, we can increase revenues by increasing the volume of new products, Johnny: "There is a lot of merit to the observation that cost reduction opportunities reside mostly in product development. Johnny: "There is a lot of merit to the observation that cost reduction opportunities reside mostly in product development. Once a drug is approved, its approval includes the manufacturing process. Any future changes in the manufacturing process require approval from the U.S. Food and Drug Administration. Because of this, we have been reluctant, historically, to engage in process improvement or reengineering. However, I wonder if we shouldn't reconsider this longstanding policy. Some of the quality problems we have could be corrected by changing some of our existing processes, and the costs saved may easily exceed any cost incurred from seeking FDA approval. I think our quality costs are at least 15 percent of sales. That's a lot of opportunity for improvement." Kathy: "I agree that cost reduction -- both in the product development stage and the manufacturing stage--should be a key strategic theme. The environmental area also offers some very good opportunities. A recent pollution prevention act passed by the legislature requires that we calculate the costs of generating hazardous substances for each process. This act was the incentive we needed to begin developing an environmental cost management system. The results so far indicate that environmental costs are much more than we realized. They are estimated to be in the range of 20 to 30 percent of total operating costs. Environmental costs can be reduced by such things as computerizing chemical inventory eliminating the use of chlorinated solvents and other hazardous materials, reducing our use of virgin feedstocks, and redesigning processes and products so that we can reduce toxic residue release. We can really have a positive environmental impact while simultaneously reducing costs if more attention is paid to environmental issues during product development." Doreen: "I like what I am hearing because I think that it also affects our ability to increase market share and revenues. For example, environmental impact is one of our major concerns. Some retail pharmacy chains pay particular attention to green products, and right now we are not competing well. Our environmental image is negative and needs to be improved. I am convinced that doing so will allow us to increase market share. Quality is another important matter. We have had to recall two batches of products during the past two years due to poor quality, and this has hurt our image more than the environmental issue. Improving the processes to avoid these kinds of problems will save us a lot of grief. Product image and reputation are essential to increasing customer satisfaction and market share." Luis: "We started with the need to improve financial performance by increasing revenues and reducing costs. So far, we have some very good suggestions to help achieve these two objectives, but I have some concerns. First, do we have the talent and capabilities to improve quality and environmental performance? Troy, do your professionals really understand what they need to do to improve process and product designs so that we can see the desired quality and environmental improvements? Also, how can we reduce the cycle time for products and the time to market once patented?" Troy: "Let me answer those questions in order. First, we probably are lacking the understanding on the design issues. We will need to do some training to help our research scientists and chemical engineers understand the consequences. We may need to hire a couple of professionals who have experience in dealing with these issues. Second, we may need to make cycle time and time to market significant performance measures and reward our people for actions that reduce those measures. Our employees need to align their interests with those of the company. If we can achieve this, we should see more revenue produced per employee." Luis: "Good. Now, Johnny, tell us about production and quality. Do our manufacturing engineers and production workers need help with environmental and quality issues?" Johnny: "Without question, training will be needed. Moreover, I really need to hire a couple of quality engineers." Kathy: "I also think that we need an environmental engineer with experience in pharmaceutical manufacturing processes." Luis: "Good. We certainly shouldn't ignore the necessary infrastructure to bring about the needed changes. Larry, you have been relatively quiet, what do you think about all this? Do you have any suggestions? Larry: "Infrastructure is important. If this is all going to work, timely and accurate information will be needed. It is hard to design products and processes with cost being a significant issue without providing the right kind of cost information. We are in the process of revamping the cost management information system so that it is activity based and so that we can provide quality and environmental cost information. After listening to the comments made here, I might also suggest that we need a strategic measurement system that can be used to align the interests of our employees with our improvement strategy. People need to know what is important, that the important factors are being measured, and that they are going to be evaluated and rewarded based on these factors. Finally, I would encourage the use of target costing to help manage costs during product development. To help you all understand the importance of good information, I have assembled some activity data relating to two new products currently under development. These two products will use the same process, using different setups. The data are organized into resource, activity, and cost object modules with an accompanying list of activity drivers to facilitate the use of an ABC software package recently acquired by Zando." Making the Connection Chapters 11-19 5a. Calculate the cost per unit for each of the proposed products using primary activity rates. Round your answers to two decimal places. Activity rates: Setting up $ 17.61 per setup hr. Blending chemicals 54.86 per DLH Producing waste 33.89 per pound Disposing of hazardous waste 86.04 per pound Inspecting products 26.94 X per insp. hr. Releasing air contaminants 48 X per ton Operating pollution control equipment $ 92.78 X per MHr 5b. Calculate the environmental cost per unit and the quality cost per unit. What does this tell you about the relative desirability of the two products? Round your answers to two decimal places. Antibiotic XK1 Antibiotic XK5 Environmental cost per unit $ 16.64 X $ 3.13 X Quality cost per unit $ 7.04 $ 1.63 6. Following Larry's suggestion, Luis decided to use target costing to help improve new product profitability. Based on analyses by Luis and Doreen, the target prices for XK1 and XK5 are $50 per pound and $35 per pound, respectively. Luis has indicated that any new product should earn a gross profit equal to 20 percent of sales. Based on this information, answer the following: a. What is the target cost for each product? Antibiotic XK1 40 Antibiotic XK5 28 Target cost $ $ a2. Given this information, what should be done? At this point, the XKI product fails to meet the target cost, while XK5 is much lower than its target cost. Thus, a green light could be given on XK5 , and more development work is needed for XK1 before the product is approved. 51. Suppose Doreen indicates that sales for each product can be increased by 50 percent if the selling price is lowered by 10 percent. Assuming the same target profit (Luis wants the original target profit per pound maintained), calculate the new target costs. Round your answers to two decimal places. Antibiotic XK1 Antibiotic XK5 New Target cost $ b2. Calculate the unit cost at the 50,000-unit level. Round your answers to two decimal places, b2. Calculate the unit cost at the 50,000-unit level. Round your answers to two decimal places. Antibiotic XK1 Antibiotic XK5 Unit cost $ b3. If all non-value-added costs were eliminated, could the target be met? Yes b4. Calculate the effect on total profits under a scenario where non-value-added costs are not eliminated versus a scenario where all non-value-added costs are eliminated. (Include in this analysis any possible increase in sales volume.) Projected profit No elimination scenario $ Elimination scenario Feedback