question 2

Question 2 Paperbacks R Us is an innovative paperback book printer. It provides a range of 'disposable' paperbacks which are ideal for reading in the bath, bed or other relaxed location without the worries about damaging a more expensive book or electronic book. This is a competitive market where just a slight amount of over pricing results in titles not achieving a breakeven level of production, hence the interest of the CEO in applying target costing to help in dealing with the latest book "Back to the Past'. The Marketing Director estimates that the book should sell for $5.00 per copy. The Financial Controller requires a margin of 10% on the Selling Price. The company has estimated the following costs related to producing the latest book: Pages in each book: 250 pages Size of the print run: 10,000 books Direct Labour: 5 minutes per book - this is for binding/handling Direct Labour: E30 per hour - this is for binding/handling Paper costs: $5 per 1000 pages Binding materials: $20 per 1000 books Printing inks: 635 per 100 books All overheads: $12 per Direct Labour hour The Production Engineer is aware that the first print run of 10,000 books is often the slowest and most difficult. She has discovered that when they reach the fourth run of 10,000 books, costs typically stabilise due to a learning curve effect. She estimates that that there is a learning curve effect of 80% between each print run of 10,000 books each. The log of learning 'b' is -0.3219, in the equation for the cumulative average time per print run y' and y = axb. Please note : a is the time taken for the first print run of 10,000 books which is 50,000 minutes x is the number of print runs. Note that each print run is for 10,000 books. Requirements~ (a) Assuming the Production Engineer is correct, calculate the cost of the fourth print run of 10,000 books and establish whether the target cost is being achieved at this point (b) Draft a file note to go with the estimated costs in b) and in d) critically assessing the weaknesses present in those calculations.~