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PROBLEM 21

# PROBLEM 21 - PROBLEM 15-47(35 MINUTES 1 Target costing is...

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PROBLEM 15-47 (35 MINUTES) 1. Target costing is market driven, beginning with a determination of the selling price that customers are willing to pay. That price is dependent on the product they purchase and the product’s features. It is only natural that a marketing team becomes heavily involved in this process, since customer feedback is crucial to the design process. 2. Add cabinet doors: [(10 x 1) + (20 x 2) + (30 x 3) + (60 x 4) + (80 x 5)] = 780; 780 ÷ 200 = 3.900 Expand storage area: [(10 x 1) + (40 x 2) + (70 x 3) + (50 x 4) + (30 x 5)] = 650; 650 ÷ 200 = 3.250 Add security lock: [(30 x 1) + (60 x 2) + (50 x 3) + (40 x 4) + (20 x 5)] = 560; 560 ÷ 200 = 2.800 New appearance for table top: [(10 x 1) + (20 x 2) + (50 x 3) + (60 x 4) + (60 x 5)] = 740; 740 ÷ 200 = 3.700 Extend warranty: [(40 x 1) + (70 x 2) + (30 x 3) + (35 x 4) + (25 x 5)] = 535; 535 ÷ 200 = 2.675

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PROBLEM 15-47 (CONTINUED) Ranking (from strongest to weakest): 1—Add cabinet doors (3.900) 2—New appearance for table top (3.700) 3—Expand storage area (3.250) 4—Add security lock (2.800) 5—Extend warranty (2.675) 3. (a) Danish Interiors currently earns a \$48 profit on each table sold (\$240 - \$192), which translates into a 20% markup on sales (\$48 ÷ \$240). The current
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