QUESTION 4 (25 MARKS) Big Charm Chairs (BCC) manufactures and sells executive leather chairs. BCC has been using a traditional absorption costing system to calculate costs and pricing its product. The new management accountant believes that this is inappropriate and argues for a new approach to be adopted. After six month, they are considering a new design of massaging chair to launch into the competitive market in which they operate. They have carried out an investigation in the market and using a target costing system. They have undertaken market research to find out about customers' views on the value of the product. The results of this research have been used to set a target selling price of RM1,650. The target profit margin for BCC is 30% of the proposed selling price. Their projected volume is 200,000 chairs. Below are costs estimates that were prepared based on the proposed product specification: RM RM Manufacturing cost Direct material Direct labour Direct machinery costs Ordering and receiving Quality assurance Design Non-manufacturing cost Marketing Distribution After sales service and warranty cost 244.50 97.50 39.00 96.30 126.90 33.60 6.90 138.00 594.00 Required: a) As management accountants, briefly explain the principles of Just In Time (JIT) techniques and how it could be applied to BCC. (4 marks) b) Explain the main steps involved in developing a target price and target cost for a product in a typical manufacturing company. (7 marks) c) Calculate the target cost of BCC and determine any target cost reduction (6 marks) d) Discuss the implications of the outcome in (b) to BCC. (4 marks) e) Briefly explain TWO (2) limitations target costing for BCC. (4 marks) *** END OF QUESTIONS ***