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Problem 13-38 Target Costing in a Service Firm [LO 13-1]

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UR Safe Systems installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these characteristics:

Design Specifications	ICU 100			ICU 900			Cost Data
Video cameras		2			5		$	113	/ea
Video monitors		1			4		$	25	/ea
Motion detectors		2			2		$	17	/ea
Floodlights		4			3		$	7	/ea
Alarms		5			5		$	12	/ea
Wiring		620	ft.		1,020	ft.	$	0.2	/ft.
Installation		12	hr		12	hr	$	11	/hr

The ICU 100 sells for $890 installed, and the ICU 900 sells for $1,600 installed.

Part 1

Required:

1. What are the current profit margin percentages on both systems?

2. UR Safes management believes that it must drop the price on the ICU 100 to $830 and on the ICU 900 to $1,470 to remain competitive in the market. Recalculate profit margin percentages for both products at these price levels and then compute the target cost needed for each product to maintain the current profit margin percentages. (For all requirements, round your percentage answers to 2 DECIMAL PLACES and other answers to the nearest whole dollar amount.)

1. Current Profit Margin for ICU 100 and ICU 900

2 Profit Margin for ICU 100 and ICU 900

Target cost for ICU 100 and ICU 900