Question

Requirement 1, 2, and 3 Answer choices: Should the new product released to production? (YES OR NO) ... estimated contribution to profit is --- (Less OR greater) than the desired contribution to profit.

Better Buy Corporation uses target costing to aid in the final decision to release new products to production. A new product is being evaluated. Market research has surveyed the potential market for this product and believes that its unique features will generate a total demand over the product's life of 72,000 units at an average price of $300. The target costing team has members from market research, design, accounting, and production engineering departments. The team has worked closely with key customers and suppliers. A value analysis of the product has determined that the total cost for the various value-chain functions using the existing process technology are as follows: 囲(Click the icon to view the total cost data.) Management has a target contribution to profit percentage of 35% of sales. This contribution provides sufficient funds to cover corporate support costs, taxes, and a reasonable profit. Read the requirements. Data Table Requirement 1. Should the new product be released to production? Explain. Begin by calculating the estimated excess contribution to or deficiency in profit from releasing the new product. ( Estimated contribution to profit Desired (target) contribution to profit Excess contribution to (deficiency in) profit Should the new product be released to production? Value-Chain Function Research and development Design Manufacturing (80% outsourced to suppliers) Marketing Distribution Customer service Total cost over product life Total Cost over Product Life 1,000,000 550,000 6,500,000 900,000 1,400,000 4,510,000 14,860,000 Vto production because its estimated contribution to profit is Requirement 2. Approximately 80% of manufacturing costs for this product consists of materials and parts that improvements that will reduce supplier cost by 5%. Should the new product be released to production? Explain. Begin by calculating the revised estimated excess contribution to or deficiency in profit from releasing the new Enter any number in the edit fields and then continue to the next question. Print Done Better Buy Corporation uses target costing to aid in the final decision to release new products to production. A new product is being evaluated. Market research has surveyed the potential market for this product and believes that its unique features will generate a total demand over the product's life of 72,000 units at an average price of $300. The target costing team has members from market research, design, accounting, and production engineering departments. The team has worked closely with key customers and suppliers. A value analysis of the product has determined that the total cost for the various value-chain functions using the existing process technology are as follows: EEB (Click the icon to view the total cost data.) nagement has a arget contribution to profit percentage of 35% o sa es. This contr bu on prov des su cent unds oc er co po te support costs axes, and a reasonabe ro Read the requirements. Requirement 1. Should the new product be released to production? Explain. Begin by calculating the estimated excess contribution to or deficiency in profit from releasing the new product (Use a minus sign or parentheses for a deficiency in profit.) Estimated contribution to profit Desired (target) contribution to profit Excess contribution to (deficiency in) profit Should the new product be released to production? to production because its estimated contribution to profit isthan the desired contribution to prof Better Buy Corporation uses target costing to aid in the final decision to release new products to production. A new product is being evaluated. Market research has surveyed the potential market for this product and believes that its unique features will generate a total demand over the products life of 72,000 units at an average price of $300. The target costing team has members from market research, design, accounting, and production engineering departments. The team has worked closely with key customers and suppliers. A value analysis of the product has determined that the total cost for the various value-chain functions using the existing process technology are as follows: (Click the icon to view the total cost data.) anagement has a target contribution to profit percentage of 35% of sales. This o tribu on provides sufficient funds over corporate support costs, axes, and a reasonable rot. Read the requirements. Requirement 2. Approximately 80% o manufacturing costs for this product consists of materials and parts that are purchased from suppliers. Key suppliers o the taget costing team have suggested process improvements that will reduce supplier cost by 5%. Should the new product be released to production? Explain. Begin by calculating the revised estimated excess contribution to or deficiency in profit from releasing the new product under this scenario. (Use a minus sign or parentheses for a deficiency in profit.) Revised estimated contribution to profit Desired (target) contribution to profit Revsied excess contribution to (deficiency in) profit Should the new product be released to production? released to production because its estimated contribution to profit is ▼ than the desired contribution to profit. Requirement 3 New process echnology can be purchased at a cost o S310 000 hat will reduce non outsourced manufacturing costs by 35% Assuming the supp er s process improvements on require and new process technology are implemented, should the new product be released to production? Explain. en 2 Begin by calculating the revised estimated excess contribution to or deficiency in profit from releasing the new product under this scenario. (Use a minus sign or parentheses for a deficiency in profit.) Better Buy Corporation uses target costing to aid in the final decision to release new products to production. A new product is being evaluated, Market research has surveyed the potential market for this product and believes that its unique features will generate a total demand over the product's life of 72,000 units at an average price of $300. The target costing team has members from market research, design, accounting, and production engineering departments. The team has worked closely with key customers and suppliers. A value analysis of the product has determined that the total cost for the various value-chain functions using the existing process technology are as follows (Click the icon to view the total cost data.) nagement has a arget contribution o pro percentage o 3 % o sa es. This contribution rovides sufficient unds o cover o porate support os axes, and a reasonable ri Read the requirements. Should the new product be released to production? V released to production because its estimated contribution to profit is Vthan the desired contribution to profit Requirement 3. New process technology can be purchased at a cost of $310,000 that will reduce non-outsourced manufacturing costs by 35%. Assuming the supplier's process improvements (from requirement 2) and new process technology are implemented, should the new product be released to production Explain. Begin by calculating the revised estimated excess contribution to or deficiency in profit from releasing the new product under this scenario. (Use a minus sign or parentheses for a deficiency in profit.) Revised estimated contribution to profit Desired(target) contribution to profit Revsied excess contribution to (deficiency in) profit Should the new product be released to production? Vreleased to production because its estimated contribution to profit is Vthan the desired contribution to profit

Answer 1

Requirement 1
Total Unit Demand	72,000
Sales Price	300
Sales $ = Demand * Price	21,600,000
R&D	1,000,000
Design	550,000
Manufacturing	6,500,000
Marketing	900,000
Distribution	1,400,000
Customer Service	4,510,000
Total Cost	14,860,000
Profit = Sales - Cost	6,740,000
Profit %	31%
Estimated Contribution to Profit	31%
Target Contribution to Profit	35%
Deficiency in Profit	-4%
New Product should not be released to production because its estimated contribution to profit is less than desired contribution
Requirement 2
Manufacturing Cost	6,500,000
20% of manufacturing Cost	1,300,000	a
Supplier Cost = 80% of manufacturing Cost	5,200,000	b
with 5% reduction on Supplier cost=	4,940,000	c
Revised Manufacturing Cost	6,240,000	d=a+c
Revised Total Cost =	Total Cost - Old Manufacturing Cost + revised Manufacturing Cost
Revised Total Cost =	14,600,000	e
Profit = Sales - Cost	7,000,000
Profit %	32%
Estimated Contribution to Profit	32%
Target Contribution to Profit	35%
Deficiency in Profit	-3%
New Product should not be released to production because its estimated contribution to profit is Still less than desired contribution
Requirement 3
Manufacturing Cost with Supplier Process Improvement	6,240,000	d
Inhouse Cost	1,300,000	a
Supplier Cost	4,940,000	c
With New Process Tech
Inhouse cost reduced by 35%	845,000	f
Supplier Cost	4,940,000	c
Capex for new technology	310,000	g
Revised Manufacturing cost with full process Improvement	6,095,000	h=f+c+g
2nd Revised Total Cost =	Revised Total Cost - Revised Manufacturing Cost + Revised Manufacturing Cost with full process improvement
Revised Total Cost =	14,455,000	j=e-d+h
Profit = Sales - Cost	7,145,000
Profit %	33%
Estimated Contribution to Profit	33%
Target Contribution to Profit	35%
Deficiency in Profit	-2%
New Product should not be released to production because its estimated contribution to profit is Still less than desired contribution