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Innovet ltd manufactures and sells a wide range of products . The company is in the process of introducing a new product in the market branded Zedo

Currently , the selling price for the new products has been calculatedon a cost plus basis , and a marketing penetration approach to pricing has been applied

The manangement has decided that a target costing approach should be applied to development and marketing of Zedo.

The following information relates to the operations of Innovet ltd and the production of Zedo

1.The estimated production volumes for a three year market lifecycle is as follows:

Year	units
2020	1,600,000
2021	1,800,000
2022	1,520,000

2. In the year 2020 production is estimated to be 32 units per labour hour. As employees become more familiar with the production process, it is expected that productivity will increase by 3%in the year 2021 and a further 2% in the year 2022

3. Labour is currently charged to products at a rate of ksh.240 per hour.A three year remuneration package has been negotiated with the workforce. This provides for a 5 percent in the year 2021 and a further 4 percent increase in the year 2022

4.Material costs are estimated to be sh.9 per unit of output in the year 2020. As a result of longterm supply contracts with suppliers, these will be reduced by 2 percent beginning year 2021.there will be no further changes .

5.Variable overheads are charged to products on a labour hours basis at a rate of sh.320 per hour in year 2020. Variable overhead costs are expected to rise by 5% in the year 2021 and a further 4 %in the year 2022.

6.Fixed overheads allocated to the product are estimated to sh.8,680,000 in the year 2020 and are expected to increase by 4% in each of the following two years.

7.Research has indicated that a selling price of sh38 per unit for years 2020 and 2021 and sh 35 per unit in the year 2022 will lead to the anticipated sales volumes

8.A target profit margin of 20 per cent has been set.

Required:

Using target costing approach , calculate the following

1. Total cost per unit for each year
2. Cost gap per unit for each year

Total cost savings which must be achieved in the three years of the products life cycle

Innovet ltd manufactures and sells a wide range of products . The company is in the process of introducing a new product in the market branded Zedo

Currently , the selling price for the new products has been calculatedon a cost plus basis , and a marketing penetration approach to pricing has been applied

The manangement has decided that a target costing approach should be applied to development and marketing of Zedo.

The following information relates to the operations of Innovet ltd and the production of Zedo

1.The estimated production volumes for a three year market lifecycle is as follows:

Year	units
2020	1,600,000
2021	1,800,000
2022	1,520,000

2. In the year 2020 production is estimated to be 32 units per labour hour. As employees become more familiar with the production process, it is expected that productivity will increase by 3%in the year 2021 and a further 2% in the year 2022

3. Labour is currently charged to products at a rate of ksh.240 per hour.A three year remuneration package has been negotiated with the workforce. This provides for a 5 percent in the year 2021 and a further 4 percent increase in the year 2022

4.Material costs are estimated to be sh.9 per unit of output in the year 2020. As a result of longterm supply contracts with suppliers, these will be reduced by 2 percent beginning year 2021.there will be no further changes .

5.Variable overheads are charged to products on a labour hours basis at a rate of sh.320 per hour in year 2020. Variable overhead costs are expected to rise by 5% in the year 2021 and a further 4 %in the year 2022.

6.Fixed overheads allocated to the product are estimated to sh.8,680,000 in the year 2020 and are expected to increase by 4% in each of the following two years.

7.Research has indicated that a selling price of sh38 per unit for years 2020 and 2021 and sh 35 per unit in the year 2022 will lead to the anticipated sales volumes

8.A target profit margin of 20 per cent has been set.

Required:

Using target costing approach , calculate the following

1. Total cost per unit for each year
2. Cost gap per unit for each year

Total cost savings which must be achieved in the three years of the products life cycle

Innovet ltd manufactures and sells a wide range of products . The company is in the process of introducing a new product in the market branded Zedo

Currently , the selling price for the new products has been calculatedon a cost plus basis , and a marketing penetration approach to pricing has been applied

The manangement has decided that a target costing approach should be applied to development and marketing of Zedo.

The following information relates to the operations of Innovet ltd and the production of Zedo

1.The estimated production volumes for a three year market lifecycle is as follows:

Year	units
2020	1,600,000
2021	1,800,000
2022	1,520,000

2. In the year 2020 production is estimated to be 32 units per labour hour. As employees become more familiar with the production process, it is expected that productivity will increase by 3%in the year 2021 and a further 2% in the year 2022

3. Labour is currently charged to products at a rate of ksh.240 per hour.A three year remuneration package has been negotiated with the workforce. This provides for a 5 percent in the year 2021 and a further 4 percent increase in the year 2022

4.Material costs are estimated to be sh.9 per unit of output in the year 2020. As a result of longterm supply contracts with suppliers, these will be reduced by 2 percent beginning year 2021.there will be no further changes .

5.Variable overheads are charged to products on a labour hours basis at a rate of sh.320 per hour in year 2020. Variable overhead costs are expected to rise by 5% in the year 2021 and a further 4 %in the year 2022.

6.Fixed overheads allocated to the product are estimated to sh.8,680,000 in the year 2020 and are expected to increase by 4% in each of the following two years.

7.Research has indicated that a selling price of sh38 per unit for years 2020 and 2021 and sh 35 per unit in the year 2022 will lead to the anticipated sales volumes

8.A target profit margin of 20 per cent has been set.

Required:

Using target costing approach , calculate the following

1. Total cost per unit for each year
2. Cost gap per unit for each year

Total cost savings which must be achieved in the three years of the products life cycle