Question

1. Accepting Business at a Special Price

Forever Ready Company expects to operate at 90% of productive capacity during May. The total manufacturing costs for May for the production of 30,600 batteries are budgeted as follows:

Direct materials	$241,400
Direct labor	88,700
Variable factory overhead	24,860
Fixed factory overhead	50,000
Total manufacturing costs	$404,960

The company has an opportunity to submit a bid for 1,000 batteries to be delivered by May 31 to a government agency. If the contract is obtained, it is anticipated that the additional activity will not interfere with normal production during May or increase the selling or administrative expenses.

What is the unit cost below which Forever Ready Company should not go in bidding on the government contract? Round your answer to two decimal places.
$ per unit

2.

Product Cost Method of Product Costing

Voice Com, Inc. uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 4,980 cell phones are as follows:

Variable costs per unit:						Fixed costs:
	Direct materials		$74				Factory overhead	$200,300
	Direct labor		31				Selling and administrative expenses	71,100
	Factory overhead		22
	Selling and administrative expenses		23
		Total variable cost per unit	$150

a. Determine the product cost markup percentage for cell phones. Round your answer to two decimal places.

b. Determine the selling price of cell phones. Round your answers to the nearest whole dollar.

Total Cost: $ per unit

Markup $ per unit

Selling price $ per unit

3.

Target Costing

Laser Impressions Inc. manufactures color laser printers. Model J20 presently sells for $650 and has a product cost of $520, as follows:

Direct materials	$370
Direct labor	100
Factory overhead	50
Total	$520

It is estimated that the competitive selling price for color laser printers of this type will drop to $620 next year. Laser Impressions has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost-reduction ideas:

1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 9 minutes per unit.
2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $13 per unit.
3. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 45% of the factory overhead are related to running injection molding machines.

The direct labor rate is $42 per hour.

a. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price are maintained. Round your final answer to two decimal places.
$ per unit

b. Determine the required cost reduction. Enter as a positive number. Round your final answer to two decimal places.
$ per unit

c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved. Enter all amounts as positive numbers. Do not round interim calculations but round your final answers to two decimal places.

1. Direct labor reduction	$	per unit
2. Additional inspection	$	per unit
3. Injection molding productivity improvement	$	per unit
Total savings	$	per unit

Answer 1

Answer to Q#1 (First question in the list): As it is given that the additional activity will not interfere with normal production during May or increase the selling or administrative expenses, variable manufacturing costs only shall be considered as relevant costs in this scenario. In other words, fixed manufacturing overhead cost shall be considered as irrelevant cost because it is expected to incur in either case, if the special order is accepted or not. Therefore, Direct materials Direct labor Variable factory overhead Total variable manufacturing costs Number of batteries budgeted to be produced Variable manufacturing cost per battery $241,400 $88,700 $24,860 $354,960 30,600 $11.60 ($354960 / 30600 batteries] Therefore, the unit cost below which Forever Ready Company should not go in bidding on the government contract should be $11.60.