Question 19

Edward Co assembles and sells many types of radio. It is considering extending its product range to include digital radios. These radios produce a better sound quality than traditional radios and have a large number of potential additional features not possible with the previous technologies (station scanning, more choice, one touch tuning, station identification text and song identification text etc).

A radio is produced by assembly workers assembling a variety of components. Production overheads are currently absorbed into product costs on an assembly labour hour basis. Edward Co is considering a target costing approach for its new digital radio product.

Required:

1. Briefly describe the target costing process that Edward Co should undertake.
2. Explain the benefits to Edward Co of adopting a target costing approach at such an early stage in the product development process.
3. Assuming a cost gap was identified in the process, outline possible steps Edward Co could take to reduce this gap.

   Question 19

   Edward Co assembles and sells many types of radio. It is considering extending its product range to include digital radios. These radios produce a better sound quality than traditional radios and have a large number of potential additional features not possible with the previous technologies (station scanning, more choice, one touch tuning, station identification text and song identification text etc).

   A radio is produced by assembly workers assembling a variety of components. Production overheads are currently absorbed into product costs on an assembly labour hour basis. Edward Co is considering a target costing approach for its new digital radio product.

   Required:

4. Briefly describe the target costing process that Edward Co should undertake.
5. Explain the benefits to Edward Co of adopting a target costing approach at such an early stage in the product development process.
6. Assuming a cost gap was identified in the process, outline possible steps Edward Co could take to reduce this gap.