030 per tile despite the fact that its revenue per

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$0.30 per tile despite the fact that its revenue per tile has decreased by $0.20 ($4.00 – $3.80),while its purchase cost per tile has decreased by only $0.12 ($3.00 – $2.88).TotalTotalTotalforforfor250,000250,000250,000TilesTilesTiles(1)(1)(1)PerPerPerUnitUnitUnit(2)(2)(2)=(1)(1)(1)÷250,000250,000250,000Revenues ($4250,000)Purchase cost of tiles ($3250,000)Ordering costs ($50500)Receiving and storage ($304,000)Shipping ($401,500)Total costsOperating income$1,000,000750,00025,000120,00060,000955,000$45,000$4.003.000.100.480.243.82$0.18TotalTotalTotalforforfor250,000250,000250,000TilesTilesTiles(1)(1)(1)PerPerPerUnitUnitUnit(2)(2)(2)=(1)(1)(1)÷250,000250,000250,000Revenues ($3.80250,000)Purchase cost of tiles ($2.88250,000)Ordering costs ($50500)Receiving and storage ($304,000)Shipping ($401,500)Total costsOperating income$950,000720,00025,000120,00060,000925,000$25,000$3.802.880.100.480.243.70$0.10TotalTotalTotalforforfor250,000250,000250,000TilesTilesTiles(1)(1)(1)PerPerPerUnitUnitUnit(2)(2)(2)=(1)(1)(1)÷250,000250,000250,000Revenues ($3.80250,000)Purchase cost of tiles ($2.88250,000)Ordering costs ($25200)Receiving and storage ($283,125)Shipping ($401,500)Total costsOperating income$950,000720,0005,00087,50060,000872,500$ 77,500$3.802.880.020.350.243.49$0.31
12-12-2212-2212-22(20 min.)TargetTargetTargetcosts,costs,costs,effecteffecteffectofofofproduct-designproduct-designproduct-designchangeschangeschangesonononproductproductproductcostscostscosts.1. and 2. Manufacturing costs of HJ6 in 2008 and 2009 are as follows:200820082008200920092009PerPerPerUnitUnitUnitPerPerPerUnitUnitUnitTotalTotalTotal(2)(2)(2)=TotalTotalTotal(4)(4)(4)=(1)(1)(1)(1)(1)(1)÷3,5003,5003,500(3)(3)(3)(3)(3)(3)÷4,0004,0004,000Direct materials, $1,200 × 3,500; $1,100 × 4,000$4,200,000$1,200$4,400,000$1,100Batch-level costs, $8,000 × 70; $7,500 × 80560,000160600,000150Manuf. operations costs, $55 × 21,000;$50 × 22,0001,155,0003301,100,000275Engineering change costs, $12,000 × 14;$10,000 × 10168,00048100,00025Total$6,083,000$1,738$6,200,000$1,5503.=× 90%Target manufacturing costper unit of HJ6 in 2009Manufacturing costper unit in 2008= $1,738 × 0.90 = $1,564.20Actual manufacturing cost per unit of HJ6 in 2009 was $1,550. Hence, Medical Instruments didachieve its target manufacturing cost per unit of $1,564.204.To reduce the manufacturing cost per unit in 2009, Medical Instruments reduced the costperunitineachofthefourcostcategories—directmaterialscosts,batch-levelcosts,manufacturing operations costs, and engineering change costs. It also reduced machine-hoursand number of engineering changes made—the quantities of the cost drivers. In 2008, MedicalInstruments used 6 machine-hours per unit of HJ6 (21,000 machine-hours3,500 units). In 2009,Medical Instruments used 5.5 machine-hours per unit of HJ6 (22,000 machine-hours4,000units). Medical Instruments reduced engineering changes from 14 in 2008 to 10 in 2009.Medical Instruments achieved these gains through value engineering activities that retained onlythose product features that customers wanted while eliminating nonvalue-added activities andcosts.
12-12-2312-2312-23(20 min.)Cost-plusCost-plusCost-plustargettargettargetreturnreturnreturnonononinvestmentinvestmentinvestmentpricing.pricing.pricing.1.Target operating income = target return on investmentinvested capitalTarget operating income (25% of $1,000,000)$250,000Total fixed costs358,000Target contribution margin$608,000Target contribution per room-night, ($608,000 ÷ 16,000)$38Add variable costs per room-night4Price to be charged per room-night$42ProofTotal room revenues ($4216,000 room-nights)$672,000Total costs:Variable costs ($416,000)$ 64,000Fixed costs358,000Total costs422,000Operating income$250,000The full cost of a room =variable cost per room + fixed cost per roomThe full cost of a room =$4 + ($358,000 ÷ 16,000) = $4 + $22.375 = $26.375Markup per room=Rental price per room – Full cost of a room=$42 – $26.375 = $15.625Markup percentage as a fraction of full cost = $15.625 ÷ $26.375 = 59.24%2.

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