Regal Bath Inc. is considering the production of a new bathroom vent system. The

Question

Regal Bath Inc. is considering the production of a new bathroom vent system.  The marketing department has determinded that there would be demand for the product at or below a selling price of $175 per unit.  Anticipated unit costs are as follows:

Direct Materials $28

DirectLabor Costs:

MAnufacturing:

Hours   2.2

Hourly rate  $12

Assembly:

Hours   2.5

Hourly Rate   $10

Machine hours

Royal uses the following activity-based costs:

Materials handling   120% of direct material

Production   $8.00  per machine hour

Shipping and handling      $10 per unit

The company's desired profit is 25 percent over total production and shipping costs.

Calculate the target cost for this product and determine whether or not it should be produced.

Explanation / Answer

direct labor/ material handling cost: 120%*28=34$

manufacturing/ production cost=2.2*8=18

hours: 2.2*12=26

direct materials =28

assembly: 2.5*10=25

shipping and handling: 10$

total cost: 141$

profit = 175-141=34

if 141 is 100% then 34 $ is 24%

Do not produce, bcz the target profit is over 25% while estimated profit is over 24% of total cost

or

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