Cost Management
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BE13-19 Market price=$50/unit; competitive pressure have reduced market price to $45.
Firm manufactures 10,000 of these per year at a cost of $38 per unit (including $22 fixed cost and $16 variable cost per unit). Other selling and administrative costs for the product are $8 per unit.
What is the firms target cost for this product?
The firms target cost can be calculated by subtracting the competitive price from the desired profit.
Since when the firm was previously operating, the desired profit was $4 per unit, if the firm were to continue trying to maintain that same profit, they would have to have a target cost of $41 (Competitive price 45 – desired profit $4).
If the firm was to modify the profit based upon the new competitive price and adjust the new profit accordingly, the profit desired would be $3.60. If $3.60 was the desired profit, the target cost would be $41.40.
BE13-27 Current product sells for $160; competitor offers it for $140. Parts cost $130 and company needs to reduce price to $140 to remain competitive. What is the target cost if Comdex desires a 25% profit on sales dollars?
Since target cost = Competitive price – desired profit
The competitive price is 140 and a 25% profit on sales dollars would be $35 per product sold.
Therefore, the target cost would be 140-35= 105. The company would have to reduce its parts cost by 25 dollars in order to meet this target cost.
E13-40 Determine the appropriate life cycle stage for each activity
Decline in sales: Marketing & Distribution/Customer Service
Advertising: Marketing and distribution
Boost in production: Manufacturing
Stabilized profits: Marketing & Distribution/Customer Service
Competitors entrance into market: R&D OR Marketing & Distribution/Customer Service
Market research: Marketing & Distribution/Customer Service
Market saturation: Marketing & Distribution
Start production: Manufacturing
Product testing: R & D
Termination of product: All stages need to do something (R&D, Design, Manufacturing, Marketing & Distribution and Customer Service)
Large increase in sales: Manufacturing, Marketing and Distribution
P13-51 Theory of Constraints
REC-1 (A)
REC-1 (B)
REC-2 (B)
REC-2 (C)
Finishing
Machining
Assembly
Receiving
Total
15000
11500
Price sold
Cost of Materials
$6000
$15000
The best production plan for REC-2 would be to use Material C because it takes 2,400 less minutes than REC-2 B and costs the