1 - JustAnswer
Target costing; unit cost, Calcutron Company is contemplating introducing a new type of calculator to complement its existing line of scientific calculators. The target price of the calculator is $75; annual sales volume of the new calculator is expected to be 500,000 units. Calcutron has a 15% return-on-sales target.
a. compute the unit target cost per calculator.
| |Target sales (500,000 calculators ( $75) |$37,500,000 |
| | | |
| |Less: Target profit (15% ( $75/calculator ( 500,000 | |
| |calculators) |5,625,000 |
| | | |
| |Target cost for 500,000 calculators |$31,875,000 |
| | | |
| |Unit target cost ($31,875,000/500,000 calculators) |$ 63.75 |
2. Target costing: return on sales, Stacy Yoo, president of Ceremore, Inc, an appliance manufacturer in settle, Washington, has been trying to decide whether one of her product-line managers, Bill Mann, has been achieving the companywide return-on-sales target of 45%. Stacy has just received data from the new target costing system regarding Bill’s operation. Bill’s sales volume was 300,000 appliances with an average selling price of $500 and expenses totaling $90 million.
a. Determine whether Bill’s return-on sale ratio has met the companywide target. Has Bill done a good or a poor job? Explain.
To compute the return on sales (ROS) for Bill Mann, it is necessary to
determine Bill’s profit margin:
Sales (300,000 units ( $500) $150,000,000
Less: Expenses 90,000,000
= Profit Margin (ROS ( Sales) $60,000,000
ROS ( $150,000,000 = $60,000,000, so ROS = 40%.
Thus, Bill Mann has not met the company-wide return-on-sales target of
45%. Assuming Bill’s initial target costs and target sales prices were
consistent with the company-wide return-on-sales target, Bill should explain
the causes for below-target performance. Potential problem areas include
manufacturing costs and misestimation of customer demand for the
products’ functionality at the target prices. Evaluating whether Bill has done
a good or poor job will involve determining the extent to which Bill could
control cost, and evaluating Bill’s judgment in setting prices.
3. Kaizen costing: behavioral issues, Kaizen costing is a method that many Japanese companies have found effective in reducing costs. From a behavioral point of view, answer these questions:
a. What are the biggest problems in using Kaizen costing?
The biggest problem with Kaizen costing is similar to the one that faces
target costing, and that is the system places enormous pressure on employees
to reduce every conceivable cost. The results of this pressure are internal
conflicts among various parties and a great deal of employee burnout.
b. How can managers overcome these problems?
To address the problem, some Japanese automobile companies use a grace
period in manufacturing just before a new model is introduced. This period,
called a cost sustainment period, provides employees with the opportunity to
learn any new procedures before the company imposes Kaizen and target
costs on them. Another solution relates to the kinds of penalties that
employees face as a result of not attaining cost targets. In Japan, for those
employees with lifetime employment, there is virtually no chance of losing
one’s job, however, there are “social penalties” such as loss of face, letting
down the company, etc., associated with not achieving targets. In the United
States the threat of job loss is much more salient. The last thing that U.S.
managers would want to do is to threaten job loss to those who did not
achieve targets. This would simply exacerbate the problem. In the final
analysis, Kaizen costing has to be understood as a tool for change, but not as
a hammer.
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.