Target Cost of Proposed New Product

boilermakerwrapperElectronics - Devices

Nov 8, 2013 (4 years ago)

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Target Cost of Proposed New Product

5th Edition


Timberland is considering
ma
nufacturing

special
crates to be

used for shipping new
mainframe computers
. T
he company is working with a computer
manufactu
rer who is
thinking of using the new crates

as a s
tandard component for shipping their
computer
s
.
Timberland
's marketin
g manager has determined that mainframe computer

buyers would be

willing to pay $110 for a

crate. Timberland's p
ackaging

and assembly

cost
for each
new
crates

is $25.

Rese
arch conducted
jointly by the computer

maker and Timberland
's marketing
personnel shows that customers want six features. These are: (1)
durability
, (2)
ease of
packing
, (3)
protection from damage

(4)
ease of use
(5) compa
tibility with most brands of
mainframes
, and (6) ability to
reuse the crates.


Based on this research, Timberland
's engineers have come up with a design that
uses four main
production
modules

or processes.
Each process

has several major
sub
-
processes
. A list of the

major
process
es
, toget
her with preliminary cost estimates
(includes all labor, material and overhead)
for

manufa
cturing or buying each process
,
appears in Table 1 below.



In addition to the above, the marketing department estimates that order filling
(primarily order pr
ocessing and delivery) costs would run $4.00 per unit. General and
administrative costs are expec
ted to be $14.00 a unit. Timberland

expects to earn a 15
p
ercent return
on
the
selling price
.

Assume that each process would absorb any necessary cost reductions proportionately
to the total costs of all the
processes (exclude
packaging

and assembly
,
order filling
costs and general and administrative costs since it has been determined that these co
sts
can not be reduced.)



Table One


Process


Estimated Current Costs


A



$9.50

B



$8.50

C



$8.00

D



$46.00

Total Costs


$72.00



Requirement:

Prepare a schedule showing the
t
arget cost

that must be achieved to earn the
required 15% return. Please show all computations.