Risk Table Risk Risk Description Likelihood of Risk Impact Risk Impact A Poor media coverage creates negative public perception of JAT 0 30 $25,000,000 B Regulators ground aircraft as a result of poor JAT product performance 0 10 $30,000,000 C Full cost of new product designs causes JATs prices to significantly exceed that of competitors 0 70 $10,000,000 D Global recession decreases demand for aircraft products 0 25 $55,000,000 E Internal product quality challenges consume excessive resources 0 85 $70,000,000 F Inability to attract and retain the best aerospace engineers and employees 0 90 $50,000,000 G Total time to develop, approve, and deliver new products to customers lags behind competitors 0 45 $42,000,000 H Environmental issues negatively impact JAT product design or manufacturing 0 75 $75,000,000 I Regulatory approval of new JAT products slows considerably 0 50 $35,000,000 J JATs level of product feature innovation falls behind that of main competitors 0 40 $60,000,000 Measured as a probability (0 to 100 ) Measured by a composite score that includes financial, regulatory, business interruption, time horizon, and reputational impact Resource Module (Projected General Ledger Costs of Manufacturing Process Associated with the Two Products) Materials $20,000,000 Salaries and wages 10,000,000 Energy 5,000,000 License fee (environmental) 2,000,000 Environmental fines 4,000,000 Depreciation pollution control equipment 2,000,000 $43,000,000 Activity Module Resource Driver (Percentage Usage) Materials Labor Energy Fees Fines Supervising process 0 20 0 0 0 Setting up 3 14 18 0 0 Blending chemicals 80 30 25 0 0 Producing waste 10 4 17 20 0 Disposing of hazardous waste 6 20 9 30 70 Inspecting products 0 8 6 0 0 Monitoring release of air contaminants (CO 2 ) 0 0 0 50 30 Operating pollution control equipment 1 4 25 0 0 100 100 100 100 100 Secondary activity whose costs are assigned to primary activities in proportion to the labor time used List of Activity Drivers Activity Drivers Activity Capacity Setup hours 30,000 Direct labor hours (blending) 60,000 Pounds of wastes 15,000 Pounds of hazardous waste 18,000 Hours of inspection 6,000 Tons of air contaminants 10 Machine hours (pollution control) 5,000 Capacity is flexible (i e , acquired as needed, and always matches usage) Capacity for other activities is acquired in advance of usage For example, setups are acquired in units (steps) of 950 hours Projected usage for setups equals practical capacity Cost Object Module (Products and Projected Activity Usage) Cost Objects FLI 4HY FLI 2LW Expected output (pounds) 50,000 50,000 Setup hours 18,000 10,500 Direct labor hours (blending) 36,000 24,000 Pounds of waste 12,000 3,000 Pounds of hazardous waste 12,000 5,000 Hours of inspection 5,000 1,000 Tons of air contaminants 8 2 Machine hours (pollution control) 4,000 1,000 Required 6 Consider the unit costs (round all answers to two decimal places) a Determine the cost per unit for the two proposed products (FLI 4HY and FLI 2LW) by calculating primary activity rates and applying costs accordingly Activity rates Setting up $fill in the blank 3db1e3f98063027 1 per setup hr Blending chemicals $fill in the blank 3db1e3f98063027 2 per DLH Producing waste $fill in the blank 3db1e3f98063027 3 per lb of waste Disposing of hazardous waste $fill in the blank 3db1e3f98063027 4 per lb of haz waste Inspecting products $fill in the blank 3db1e3f98063027 5 per insp hr Monitoring release of air contaminants $fill in the blank 3db1e3f98063027 6 per ton Operating pollution control equipment $fill in the blank 3db1e3f98063027 7 per MH FLI 4HY $fill in the blank 3db1e3f98063027 8 FLI 2LW $fill in the blank 3db1e3f98063027 9 b Calculate the environmental cost per unit and the quality cost per unit Round your answers to two decimal places FLI 4HY FLI 2LW Environmental cost per unit $fill in the blank 3db1e3f98063027 10 $fill in the blank 3db1e3f98063027 11 Quality cost per unit $fill in the blank 3db1e3f98063027 12 $fill in the blank 3db1e3f98063027 13 7 Following Sakaris suggestion, Noela decided to use target costing to help improve new product profitability Based on analyses by Noela and William, the target prices for 4HY and 2LW are $500 per pound and $350 per pound, respectively Noela has indicated that any new product should earn a gross profit equal to 20 percent of sales Based on this information, answer the following items (round all answers to two decimal places) a1 What is the target cost for each product FLI4HY FLI2LW Target cost $fill in the blank ad6de7008f98039 1 $fill in the blank ad6de7008f98039 2 a2 Given this information, recommend the action that should be taken with respect to offering or not offering the two new products Briefly explain your recommendation At this point, the 4HY2LW4HY product cost fails to meet the target cost, while the 4HY2LW2LW product cost is lower than its target cost Thus, a green light could be given to the 4HY2LW2LW product, and more development work is needed for the 4HY2LW4HY product before it is approved for launch a3 Also, calculate the impact of your recommendation on JATs total profits $fill in the blank ad6de7008f98039 7 b1 Suppose William indicates that unit sales for each product can be increased by 50 percent if the selling price is lowered by 10 percent Assuming the same target profit (Noela wants the original target profit dollar amount per pound maintained), calculate the new target cost for each product Furthermore, assume that Katerina believes that all environmental and quality costs are non value added Round your answers to two decimal places FLI4HY FLI2LW New Target cost $fill in the blank ad6de7008f98039 8 $fill in the blank ad6de7008f98039 9 b2 Calculate the unit cost at the 50,000 unit level Round your answers to two decimal places FLI4HY FLI2LW Unit cost $fill in the blank ad6de7008f98039 10 $fill in the blank ad6de7008f98039 11 b3 If all non value added costs were eliminated, could these new target costs be met YesNoYes b4 Also, calculate the effect on total profits under a scenario where all non value added costs are eliminated (Include in this analysis any possible increase in sales volume ) Round your answers to two decimal places FLI4HY FLI2LW Projected profit $fill in the blank ad6de7008f98039 13 $fill in the blank ad6de7008f98039 14 Based on your scenario analysis, recommend whether JAT should or should not implement this new target cost and eliminate non value added costs Briefly explain your recommendation If the non value added costs are all eliminatednot eliminatedeliminated , then only the value added costs remaindont remainremain c1 After additional consultation with JATs general counsel, Katerina now believes that the cost to monitor the release of air contaminants is a value added cost because it is required by the new Pollution Prevention Act Recalculate the effect on total profits if the cost to monitor the release of air contaminants is treated as a value added cost (i e , not eliminated) Round your answers to two decimal places FLI4HY FLI2LW Projected profit $fill in the blank ad6de7008f98039 17 $fill in the blank ad6de7008f98039 18 c2 Briefly explain how this treatment affects your recommendation (in Requirement 7b)

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Risk Table Risk Risk Description Likelihood of Risk Impact* Risk Impact** A Poor media coverage creates negative public perception of JAT. 0.30 $25,000,000 B Regulators

Risk Table

Risk	Risk Description	Likelihood of Risk Impact*	Risk Impact**
A	Poor media coverage creates negative public perception of JAT.	0.30	$25,000,000
B	Regulators ground aircraft as a result of poor JAT product performance.	0.10	$30,000,000
C	Full cost of new product designs causes JATs prices to significantly exceed that of competitors.	0.70	$10,000,000
D	Global recession decreases demand for aircraft products.	0.25	$55,000,000
E	Internal product quality challenges consume excessive resources.	0.85	$70,000,000
F	Inability to attract and retain the best aerospace engineers and employees.	0.90	$50,000,000
G	Total time to develop, approve, and deliver new products to customers lags behind competitors.	0.45	$42,000,000
H	Environmental issues negatively impact JAT product design or manufacturing.	0.75	$75,000,000
I	Regulatory approval of new JAT products slows considerably.	0.50	$35,000,000
J	JATs level of product feature innovation falls behind that of main competitors	0.40	$60,000,000

*Measured as a probability (0% to 100%). **Measured by a composite score that includes financial, regulatory, business interruption, time horizon, and reputational impact.

Resource Module (Projected General Ledger Costs of Manufacturing Process Associated with the Two Products)

Materials		$20,000,000
Salaries and wages		10,000,000
Energy		5,000,000
License fee (environmental)		2,000,000
Environmental fines		4,000,000
Depreciation; pollution control equipment		2,000,000
		$43,000,000

Activity Module

	Resource Driver (Percentage Usage)
	Materials		Labor		Energy		Fees		Fines
Supervising process*	0	%	20	%	0	%	0	%	0	%
Setting up	3		14		18		0		0
Blending chemicals	80		30		25		0		0
Producing waste	10		4		17		20		0
Disposing of hazardous waste	6		20		9		30		70
Inspecting products	0		8		6		0		0
Monitoring release of air contaminants (CO₂)	0		0		0		50		30
Operating pollution control equipment	1		4		25		0		0
	100	%	100	%	100	%	100	%	100	%

*Secondary activity whose costs are assigned to primary activities in proportion to the labor time used.

List of Activity Drivers

Activity Drivers	Activity Capacity
Setup hours	30,000
Direct labor hours (blending)	60,000	*
Pounds of wastes	15,000	*
Pounds of hazardous waste	18,000
Hours of inspection	6,000
Tons of air contaminants	10	*
Machine hours (pollution control)	5,000

*Capacity is flexible (i.e., acquired as needed, and always matches usage). Capacity for other activities is acquired in advance of usage. For example, setups are acquired in units (steps) of 950 hours. Projected usage for setups equals practical capacity.

Cost Object Module (Products and Projected Activity Usage)

Cost Objects	FLI 4HY	FLI 2LW
Expected output (pounds)	50,000	50,000
Setup hours	18,000	10,500
Direct labor hours (blending)	36,000	24,000
Pounds of waste	12,000	3,000
Pounds of hazardous waste	12,000	5,000
Hours of inspection	5,000	1,000
Tons of air contaminants	8	2
Machine hours (pollution control)	4,000	1,000

Required:

6. Consider the unit costs (round all answers to two decimal places):

a. Determine the cost per unit for the two proposed products (FLI 4HY and FLI 2LW) by calculating primary activity rates and applying costs accordingly.

Activity rates:

Setting up	$fill in the blank 3db1e3f98063027_1	per setup hr.
Blending chemicals	$fill in the blank 3db1e3f98063027_2	per DLH
Producing waste	$fill in the blank 3db1e3f98063027_3	per lb. of waste
Disposing of hazardous waste	$fill in the blank 3db1e3f98063027_4	per lb. of haz. waste
Inspecting products	$fill in the blank 3db1e3f98063027_5	per insp. hr.
Monitoring release of air contaminants	$fill in the blank 3db1e3f98063027_6	per ton
Operating pollution control equipment	$fill in the blank 3db1e3f98063027_7	per MH

FLI 4HY	$fill in the blank 3db1e3f98063027_8
FLI 2LW	$fill in the blank 3db1e3f98063027_9

b. Calculate the environmental cost per unit and the quality cost per unit. Round your answers to two decimal places.

	FLI 4HY	FLI 2LW
Environmental cost per unit	$fill in the blank 3db1e3f98063027_10	$fill in the blank 3db1e3f98063027_11
Quality cost per unit	$fill in the blank 3db1e3f98063027_12	$fill in the blank 3db1e3f98063027_13

7. Following Sakaris suggestion, Noela decided to use target costing to help improve new product profitability. Based on analyses by Noela and William, the target prices for 4HY and 2LW are $500 per pound and $350 per pound, respectively. Noela has indicated that any new product should earn a gross profit equal to 20 percent of sales. Based on this information, answer the following items (round all answers to two decimal places):

a1. What is the target cost for each product?

	FLI4HY		FLI2LW
Target cost	$fill in the blank ad6de7008f98039_1		$fill in the blank ad6de7008f98039_2

a2. Given this information, recommend the action that should be taken with respect to offering or not offering the two new products. Briefly explain your recommendation.

At this point, the

4HY2LW4HY

product cost fails to meet the target cost, while the

4HY2LW2LW

product cost is lower than its target cost. Thus, a green light could be given to the

4HY2LW2LW

product, and more development work is needed for the

4HY2LW4HY

product before it is approved for launch.

a3. Also, calculate the impact of your recommendation on JATs total profits. $fill in the blank ad6de7008f98039_7

b1. Suppose William indicates that unit sales for each product can be increased by 50 percent if the selling price is lowered by 10 percent. Assuming the same target profit (Noela wants the original target profit dollar amount per pound maintained), calculate the new target cost for each product. Furthermore, assume that Katerina believes that all environmental and quality costs are non-value-added. Round your answers to two decimal places.

	FLI4HY		FLI2LW
New Target cost	$fill in the blank ad6de7008f98039_8		$fill in the blank ad6de7008f98039_9

b2. Calculate the unit cost at the 50,000-unit level. Round your answers to two decimal places.

	FLI4HY		FLI2LW
Unit cost	$fill in the blank ad6de7008f98039_10		$fill in the blank ad6de7008f98039_11

b3. If all non-value-added costs were eliminated, could these new target costs be met?

YesNoYes

b4. Also, calculate the effect on total profits under a scenario where all non-value-added costs are eliminated. (Include in this analysis any possible increase in sales volume.) Round your answers to two decimal places.

	FLI4HY		FLI2LW
Projected profit	$fill in the blank ad6de7008f98039_13		$fill in the blank ad6de7008f98039_14

Based on your scenario analysis, recommend whether JAT should or should not implement this new target cost and eliminate non-value-added costs. Briefly explain your recommendation.

If the non-value-added costs are all

eliminatednot eliminatedeliminated

, then only the value-added costs

remaindont remainremain

c1. After additional consultation with JATs general counsel, Katerina now believes that the cost to monitor the release of air contaminants is a value-added cost because it is required by the new Pollution Prevention Act. Recalculate the effect on total profits if the cost to monitor the release of air contaminants is treated as a value-added cost (i.e., not eliminated). Round your answers to two decimal places.