Question :
41) One goal of target costing to keep costs below : 1216929
41) One goal of target costing is to keep costs below the target price.
42) Steven Corporation manufactures fishing poles that have a price of $42.00. It has costs of $32.64 A competitor is introducing a new fishing pole that will sell for $36.00. Management believes it must lower the price to $36.00 to compete in the highly cost-conscious fishing pole market. Marketing believes that the new price will maintain the current sales level. Steven Corporation’s sales are currently 200,000 poles per year.
Required:
a.What is the target cost for the new price if target operating income is 20% of sales?
b.What is the change in operating income for the year if $18.00 is the new price and costs remain the same?
c.What is the target cost per unit if the selling price is reduced to $36.00 and the company wants to maintain its same income level?
43) Robert’s Medical Equipment Company manufactures hospital beds. Its most popular model, Deluxe, sells for $5,000. It has variable costs totaling $2,800 and fixed costs of $1,000 per unit, based on an average production run of 5,000 units. It normally has four production runs a year, with $400,000 in setup costs each time. Plant capacity can handle up to six runs a year for a total of 30,000 beds.
A competitor is introducing a new hospital bed similar to Deluxe that will sell for $4,000. Management believes it must lower the price to compete. Marketing believes that the new price will increase sales by 25% a year. The plant manager thinks that production can increase by 25% with the same level of fixed costs. The company currently sells all the Deluxe beds it can produce.
Required:
a.What is the annual operating income from Deluxe at the current price of $5,000?
b.What is the annual operating income from Deluxe if the price is reduced to $4,000 and sales in units increase by 25%?
c.What is the target cost per unit for the new price if target operating income is 20% of sales?
44) Warthog Avionics currently sells radios for $3,600. It has costs of $2,800. A competitor is bringing a new radio to market that will sell for $3,200. Management believes it must lower the price to $3,200 to compete in the market for radios. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Warthog’s sales are currently 1,000 radios per year.
Required:
a.What is the target cost if target operating income is 25% of sales?
b.What is the change in operating income if marketing is correct and only the sales price is changed?
c.What is the target cost if the company wants to maintain its same income level, and marketing is correct?
45) Kezer Crafts currently sells motor boats for $6,000. It has costs of $4,650. A competitor is bringing a new motor boat to the market that will sell for $5,500. Management believes it must lower the price to $5,500 to compete in the market for motor boats. Marketing believes that the new price will cause sales to increase by 12.5%, even with a new competitor in the market. Kezer Crafts’ sales are currently 2,000 motor boats per year.
Required:
a.What is the target cost if target operating income is 25% of sales?
b.What is the change in operating income if marketing is correct and only the sales price is changed?
c.What is the target cost if the company wants to maintain its same income level, and marketing is correct?
46) In target costing, what are at least two techniques used to achieve target costing goals?
47) What is the primary reason a firm would adopt target costing?
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