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Unformatted text preview: Exercises: Set B 1 EXERCISES: SET B E8-1B Grover Cheese Company has developed a new cheese slicer called Slim Slicer. The company plans to sell this slicer through its catalog, which it issues monthly. Given market re- search, Grover believes that it can charge $15 for the Slim Slicer. Prototypes of the Slim Slicer, however, are costing $22. By using cheaper materials and gaining efficiencies in mass production Grover believes it can reduce Slim Slicer’s cost substantially. Grover wishes to earn a return of 20% of the selling price. Instructions (a) Compute the target cost for the Slim Slicer. (b) When is target costing particularly helpful in deciding whether to produce a given product? E8-2B LaserSpot is involved in producing and selling high-end golf equipment.The company has recently been involved in developing various types of laser guns to measure yardages on the golf course. One small laser gun, called LittleLaser, appears to have a very large potential mar- ket. Because of competition, LaserSpot does not believe that it can charge more than $90 for LittleLaser. At this price, LaserSpot believes it can sell 100,000 of these laser guns. LittleLaser will require an investment of $7,500,000 to manufacture, and the company wants an ROI of 20%. Instructions Determine the target cost for one LittleLaser. E8-3B Swim-King makes swimsuits and sells these suits directly to retailers. Although Swim-King has a variety of suits, it does not make the All-Body suit used by highly skilled swimmers. The market research department believes that a strong market exists for this type of suit. The department indicates that the All-Body suit would sell for approximately $110. Given its experience, Swim-King believes the All-Body suit would have the following manu- facturing costs. Direct materials $ 25 Direct labor 30 Manufacturing overhead 45 Total costs $100 Instructions (a) Assume that Swim-King uses cost-plus pricing, setting the selling price 30% above its costs. (1) What would be the price charged for the All-Body swimsuit? (2) Under what circumstances might Swim-King consider manufacturing the All-Body swimsuit given this approach? (b) Assume that Swim-King uses target costing.What is the price that Swim-King would charge the retailer for the All-Body swimsuit? (c) What is the highest acceptable manufacturing cost Swim-King would be willing to incur to produce the All-Body swimsuit, if it desired a profit of $30 per unit? (Assume target costing.) E8-4B Manning Corporation makes a commercial-grade cooking griddle. The following in- formation is available for Manning Corporation’s anticipated annual volume of 30,000 units. Per Unit Total Direct materials $17 Direct labor $8 Variable manufacturing overhead $11 Fixed manufacturing overhead $450,000 Variable selling and administrative expenses $4 Fixed selling and administrative expenses $150,000 The company uses a 40% markup percentage on total cost....
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- Spring '10
- Accounting, Administrative Expenses, target selling price, PC division