Acct306 Homework Ch12 - CHAPTER 12 PRICING DECISIONS AND...

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12-1 CHAPTER 12 PRICING DECISIONS AND COST MANAGEMENT 12-37 Value engineering, target pricing, and locked-in costs. 1. Design cost $ 5,000 Direct materials 120,000 Direct manufacturing labor 142,000 Variable manufacturing overhead 64,000 Fixed manufacturing overhead 46,500 Marketing 15,000 Total cost $ 392,500 Cost per unit ($392,500 ÷ 200) $1,962.50 Target cost per unit ($2,000 × 0.90) $1,800.00 The cost estimate developed by Hoover does not meet Pacific’s requirements. Value engineering will be needed to reduce the cost per unit to the target cost. 2. Total costs (requirement 1) $ 392,500 Less: Reduction in material costs ($120,000 × 40%) (48,000) Add: Increase in design costs 6,000 Total costs of redesigned table $ 350,500 Revised cost per unit ($350,500 ÷ 200 tables) $1,752.50 Revised target cost per unit ($1,950 × 0.90) $1,755.00 The design change allows the table to meet Pacific’s requirements for

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