Exam 13: Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing

High Point Furniture manufactures a high-quality dining table, which is offered in both oak and walnut.The demand for the tables is 800 units for the oak table and 1500 for the walnut table.The tables are priced at $495 and $995 for the oak and walnut tables, respectively.The materials cost is $210 for the oak table and $430 for the walnut table.In addition, High Point has the following manufacturing information for the four manufacturing processes (receiving, preparation, assembly, and finishing), showing the amount of time (in minutes) required for each table for each process, and the total minutes of time available for each process. Required: 1.Which process(es), if any, are constraints for the current level of demand? 2.Given any constraints identified in part (1) above, determine the best production and sales plan for the two types of tables. 3.What is the overall contribution from the production plan you determined in part (2) above?

Precision Instruments, Inc. is a national firm manufacturing a full line of surgical tools for veterinarians. Recent technological developments have produced a significantly higher grade of steel to make surgical instruments and tools. All of Precision's specialized equipment is designed and calibrated to produce surgical tools using current surgical steel stock. Precision's management wants to begin using the new grade of surgical steel, but recognizes the need to redesign and calibrate existing production equipment and/or purchase newly designed production equipment. Redesign of existing equipment can be done in-house, but requires components from the Swedish manufacturer of the equipment. New equipment will also come from Sweden, but its cost is almost double that paid seven years ago for the existing equipment. Required: Identify the constraints Precision will face as it chooses to upgrade existing equipment or purchase new equipment. There is considerable market pressure to shift to use of the new steel stock for production of surgical tools.

Concurrent engineering relies on an integrated approach, in which the engineering/design process takes place throughout the cost life cycle using cross-functional teams. Strategically, this concurrent approach should give a firm all of the following except:

Excel Manufacturing is planning to make and sell 5,000 units of its only product, Excel-A.Excel is considering a variety of methods to determine the price of the order.Some key information about Excel follows: Required: 1.Determine the price using the markup of 40% of full manufacturing costs. 2.Determine the price using a 20% markup on life cycle costs. 3.Determine the price assuming a desired 50% gross margin percentage. 4.Determine the price assuming a desired 30% return on life cycle costs. 5.Determine the price assuming a desired 20% return on investment.

The management accountant at the Huang Manufacturing Company has collected the following data in preparation for a life cycle analysis on one of its products, a leaf blower: Required: Determine what stage of the sales life cycle the leaf blower is in and explain your reasoning.

Which of the following is a common form of value engineering in which the design team prepares several possible designs of the product, each having similar features with different levels of performance and different costs?

Jamestown Furniture Co.is a small, but fast-growing manufacturer of living room furniture.Its two principal products are end tables and sofas.There are five processes in the manufacturing at Jamestown: Cutting the lumber, cutting the fabric, sanding, staining, and assembly.Jamestown has one employee working in fabric cutting and one employee working in staining.These are relatively skilled workers, and could be replaced only with some difficulty.The cutting and sanding operations are performed by two workers each, and while there is some skill to these operations, it is less critical than for staining and for fabric cutting.Assembly is the least skill-based process, and is currently done by one full-time employee and a group of part timers who provide a total of 175 minutes of working time per week.The other employees work a 40 hour week, with 5 hours off for breaks, training, and personal time.Assume a four week month, and that by prior agreement, any of the employees can be switched from one task to another.The current demand for Jamestown's products and sales prices are provided below.Jamestown expects demand to increase significantly in the coming months (this depends on whether it is able to successfully obtain the order it is negotiating to get from a motel chain).The materials cost for the table is $150 and $275 for the sofa. The time required for each activity and the total time available are shown below. Required: What is the most profitable production plan for Jamestown? Explain your answer with supporting calculations.

Gail Johnston is the CFO of Lancet Technologies, a manufacturer of parts and supplies for the cable TV industry.Gail has developed an analysis of the profitability of the firm's two main product lines, cable hardware, and cable supplies.Based on the analysis, she concludes that cable hardware is the most profitable of the firm's product lines. Required: 1.Explain why Gail may be wrong in her assessment of the relative performances of the two product lines. 2.Suppose that 80 percent of the R&D and selling expenses are traceable to Hardware line.Prepare life-cycle income statements for each product and calculate the return on sales.What does this tell you about the importance of accurate life-cycle costing?

During the sales life cycle, which is an example of what happens during the maturity phase?

Which of the following is a common type of value engineering in which the performance and cost of each major function or feature of the product is examined?

TwoShaft Inc. manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by OEM (Original Equipment Manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $660, and sales volume averages 32,000 units per year. Recently, TwoShaft's major competitor lowered the price of the equivalent part to $590. The market was very competitive, and TwoShaft realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year:The target cost for maintaining current market share and profitability is (round to nearest cent):

A type of strategic pricing based on analytical methods is used to:

Henry Ford was an early pioneer in the use of:

Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to determine the price of its product. Total Costs Variable Manufacturing \ 2,350,000 Variable Selling and Administrative 750,000 Plant-level Fixed Overhead 1,200,000 Fixed Selling and Administrative 600,000 Batch-level Fixed Overhead 200,000 Total Investment in Product Line 10,000,000 Expected Sales (units) 20,000 If Johnson determines price using a desired gross margin percentage of 50%, the price is:

The five tasks that follow take place with the concept known as target costing: ● Use value engineering to identify ways to reduce product cost. ● Determine the market price. ● Determine the desired profit. ● Use kaizen costing and operational control to reduce costs. ● Calculate the target cost at market price less desired profit. Which of the following choices depicts the correct sequence of these tasks?

The goals of coordinating manufacturing processes, reducing the amount of inventory, and improving overall productivity is particularly important in a:

DualShaft Inc. manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by OEM (original equipment manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $790, and sales volume averages 38,000 units per year. Recently, DualShaft's major competitor lowered the price of the equivalent part to $710. The market was very competitive, and DualShaft realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year. Required: 1.Calculate the target cost for maintaining current market share and profitability. 2.How should the company attempt to reduce cost to meet the new target cost?

The Gargus Company, which manufactures projection equipment, is ready to introduce a new line of portable projectors. The following data are available for a proposed model: Variable manufacturing costs \ 270 Applied fixed manufacturing overhead 135 Variable selling and administrative costs 90 Applied fixed selling and administrative costs 105 What price will the company charge if the firm uses cost-plus pricing based on total cost and a markup percentage of 30%?

Electronic Component Company (ECC) is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC" video player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 video players per year. What is the target cost if target profit is 20% of sales and ECC must meet the competitive price of $220?

Which of the following is a theory of constraints (TOC) measure of product profitability that equals price less materials cost, including all purchased components and materials handling costs?