Pop mart company established for designing and selling different types of toy. It is a leading player in pop culture and entertainment industry. It has previously used a traditional absorption costing system and full cost plus pricing to cost and price its products. Recently Alex has been employed as Pop mart company's new CFO. He believes the company would benefit from using target costing. He is also considering a target costing approach for its new designed product called Pucky. After discussion with the board, Alex undertook some market research to find out customers opinions on the new toy concept and to assess potential new toys offered by competitors. A selling price of $69 has been set in order to compete with a similar product on the market that has comparable features to Pop mart company's intended product. At this price, the potential sales volume will be 1,000,000 units. The board have agreed that the acceptable margin (after allowing for all production costs) should be 30%. Alex has also begun collecting cost data for the new toy and has projected the following: Production costs per unit $ Direct material 15 Direct labour 24 Direct machine 8 Inspection and testing 2 Non-production costs (Total amount) Marketing and promotion 1,500,000 Sells and distribution 3,000,000 Pre-production costs (Total amount) Design commissions of Pucky 2,500,000 Other information: Other information: Non-production costs and Pre-production costs - include Marketing and promotion, Sells and distribution and Design commissions of Pucky. These expenses tend to be unaffected by increases or decreases in the volume of output of Pucky. Required Draft a report to answer Alex (new CFO) for the following questions: . Explain 'cost behaviour'and classify the various costs of Pop mart company. Discuss and explain what costs should be included in the total cost of Pucky? Describe the target costing process that Pop mart company should undertake. Explain the benefits to Pop mart company of adopting a target costing approach at such an early stage in the product development process. Calculate the expected cost per unit for the Pucky and identify any cost gap that might exist. Assuming a cost gap was identified in the process, outline possible steps Pop mart company could take to reduce this gap. . Pop mart company established for designing and selling different types of toy. It is a leading player in pop culture and entertainment industry. It has previously used a traditional absorption costing system and full cost plus pricing to cost and price its products. Recently Alex has been employed as Pop mart company's new CFO. He believes the company would benefit from using target costing. He is also considering a target costing approach for its new designed product called Pucky. After discussion with the board, Alex undertook some market research to find out customers opinions on the new toy concept and to assess potential new toys offered by competitors. A selling price of $69 has been set in order to compete with a similar product on the market that has comparable features to Pop mart company's intended product. At this price, the potential sales volume will be 1,000,000 units. The board have agreed that the acceptable margin (after allowing for all production costs) should be 30%. Alex has also begun collecting cost data for the new toy and has projected the following: Production costs per unit $ Direct material 15 Direct labour 24 Direct machine 8 Inspection and testing 2 Non-production costs (Total amount) Marketing and promotion 1,500,000 Sells and distribution 3,000,000 Pre-production costs (Total amount) Design commissions of Pucky 2,500,000 Other information: Other information: Non-production costs and Pre-production costs - include Marketing and promotion, Sells and distribution and Design commissions of Pucky. These expenses tend to be unaffected by increases or decreases in the volume of output of Pucky. Required Draft a report to answer Alex (new CFO) for the following questions: . Explain 'cost behaviour'and classify the various costs of Pop mart company. Discuss and explain what costs should be included in the total cost of Pucky? Describe the target costing process that Pop mart company should undertake. Explain the benefits to Pop mart company of adopting a target costing approach at such an early stage in the product development process. Calculate the expected cost per unit for the Pucky and identify any cost gap that might exist. Assuming a cost gap was identified in the process, outline possible steps Pop mart company could take to reduce this gap
