Target Costing

Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $525 and has a product cost of $420, as follows:

Direct materials	$300
Direct labor	80
Factory overhead	40
Total	$420

It is estimated that the competitive selling price for color laser printers of this type will drop to $500 next year. Laser Cast has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost-reduction ideas:

1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 9 minutes per unit.
2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $11 per unit.
3. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 40% of the factory overhead are related to running injection molding machines.

The direct labor rate is $34 per hour.

Target Casting Laser Cast Inc. manufactures color laser printers. Model 20 presently sells for $S25 and has a product cost af $420, as follows: $300 Direct materials Direct labor 80 Factory overhead 40 Total 5420 It is estimated that the competitive selling ance for color laser printers of this type will drap to $500 next year. Laser Cast has established a target cast to maintain its historical markup percentage on product cast. Engineers have provided the following cost- reduction ideas: 1. Purchase a plastic printer cover with Snap-on essembly, rather than with screws. This will reduce the amount of direct labor by 9 minutes per unit. 2. Add an inspection step that will ade six minutes per unit of direct labor but reduce the materials cast by $11 per unit. 3. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 40% of the factory overhead are related running injection molding machines. The direct labor rate is $34 per hour. a. Determine the target cost for Model 20, assuming that the historical markup on product cost and selling price are maintained. Round your final answer to two decimal places. per unit b. Determine the required cost reduction. Enter as a positive number. Round your final answer to two decimal places. s per unit c. Evaluate the three engineering improvements together to deterrnine if the required cost reduction (drift) can be achieved. Enter all arourts es positive numbers. Do not round interim calculations but round your finel answers to two decimal places. per unit 1. Direct labor reduction 2. Additional inspection 3. Injection molding productivity improvement per unit per unit Total savings per unit