Q1 TARGETCOSTING QUESTION

Edward limited is planning to manufacture and sell radios in the local market. A selling price of $44 has been set in order to compete with similar radio on the market that has comparable features to Edward Ltds intended product. The board has agreed that acceptable margin (after allowing for all production costs) should be 20%. Cost information for the new radio is as follows:

Component 1 (circuit board) these are bought in and cost $4.10 each. They are bought in batches of 4000 and additional delivery cost are $2,400 per batch.

Component 2 (wiring) n an ideal situation 25cm of wiring is needed for each completed radio. However, there is some waste involved in the process s wires is occasionally cut to the wrong length or is damaged in the assembly process. Edward Ltd estimate that 2% of the purchase wire cost $0.5 per metre to buy.

Other material other materials cost $8.10 per radio

Assembly labour these are skilled people who are difficult to recruit and retain. Edward ltd has more staff of this type than needed but is prepared to carry this extra cost in return for the security it gives the business. It takes 30 minutes to assemble a radio and assembly workers are paid $12.0 per hour. It is estimated that 10% of hours paid to the assembly workers is for idle time.

Production overhead-recent historic cost analysis has revealed the following production overhead data.

	Total product overhead ($)	Total assembly labour hours
Month 1	620,000	19,000
Month 2	700,000	23,000

Fixed production overheads are absorbed on an assembly hour basis based on normal annual activity level. In a typical year 240,000 assembly hours (20,000 hours per month) will be worked by Edward limited.

Required:

Calculate the expected cost per unit for the radio and identify any cost gap that might exist.

Q2 Example CVP Analysis

CVP Ltd is investigating the risk attached to sales plans and profit levels. The management of the company feels that, they are always struggling to create a realistic sales plan which should add to the value of CVP and its shareholders. Recently there have been production problems report by the production director in the plant utilization which have alerted the board. Now they are not sure whether to allocate resources to all their product equally which they have done in the past, or to produce and sell their product in preference to each other.

Following are the extracts from last years budgeted results relating to three products.

Pins Numbs Needles

$ $ $

Selling price per unit 12 14 9

Variable cost per unit 4 8 2

Fixed cost per unit 2 3 6

Profit per unit 6 3 1

Budgeted sales volume 3000 2000 1000

Required:

1. Calculate the budgeted profit
2. Determine the break-even revenue and the margin of safety if the company sells all the product as per their original sales plan.
3. Advice the company of an alternative plan if the management wishes to produce and sell products in preference to each other.
4. Using the same graph

1. Plot a P/V chart when all the products are produced and sold together in their original ratio
2. Plot a P/V chart when products are made and sold using an alternative plan determined in part c above.

kindly answer both questions thank you!