# E12-19 - Question no 1 The first option given by the...

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Question no. 1. The first option given by the engineers to purchase a plastic printer cover with snap-on assembly will reduce the amount of direct labor by nine minutes. This will reduce the direct labor cost by \$3.75 per unit. But the cost of purchase is not mentioned. Hence the net saving will not be \$3.75, but it will be less. Even if we take this as net saving the target selling price can be reduced by \$3.75 + 0.94 = \$4.69. Question no. 2. The second option given by the engineers to add an inspection step that will add six minutes per unit of direct labor, but will reduce the material cost by \$8.00 per unit. It is really a good option, as it will give a net saving of \$5.50 per unit as follows: Direct Material cost saving \$8.00 Less: Labor cost of six minutes \$2.50 Net Savings \$5.50 With this decrease in the cost, Laser Cast can reduce the target sale price by \$5.50 + 1.38 = \$6.88. Question no. 3 a) Calculation of historical markup on product cost Mark-up amount = Selling price – cost \$400 - \$320 = \$80 Mark-up percentage = \$80/\$320 x 100 = 25% on cost (or) \$80/\$400 x 100 = 20% on selling price

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