Laser Cast, Inc., manufactures color laser printers. Model J20 presently sells f
ID: 2509177 • Letter: L
Question
Laser Cast, Inc., manufactures color laser printers. Model J20 presently sells for $150 and has a total product cost of $120, as follows:
It is estimated that the competitive selling price for color laser printers of this type will drop to $140 next year. Laser Cast has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas:
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.
Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $3 per unit.
Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 40% of the factory overhead are related to running injection molding machines.
The direct labor rate is $8 per hour.
a. Determine the target cost for Model J20 assuming that the historical markup on product cost and selling price is maintained. Round your final answer to two decimal places.
$
b. Determine the required cost reduction. Enter as a positive number. Round your final answer to two decimal places.
$
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.
Feedback
Direct materials $90 Direct labor 20 Factory overhead 10 Total $120Explanation / Answer
Direct Material 90.00 Direct Labor 20.00 Factory OH 10.00 Total Cost 120.00 Selling Price 150.00 Profit PU 30.00 Margin on SP 20.00% (30/150) A Revised SP 140.00 Margin on SP 20.00% Profit PU 28 (140*20%) Target Cost 112.00 (140-28) B Current Cost 120.00 Target Cost 112.00 Target Cost Reduction 8.00 C 1. Direct labor reduction 0.40 WN1 2. Additional inspection 3.00 WN2 3. Injection molding productivity improvement 2.50 WN3 Total savings 5.90 Feedback Company Needs to think more for cost reduction majors since it is still short by 2.10 PU in Cost Savings WN1 Change in Direct Labor Time: In Min Due to Plastic Print Cover(Reduction) -9.00 Due to Additional Inspection(Increase) 6.00 Net Reduction in Labor Time 3.00 Rate Per Min of DL 0.133 (8/60) Net Cost Saving 0.40 WN2 Direct Material Reduction 3.00 WN 3 Related to Injection Related to Injection Direct Labor 20.00 30% 6.00 Factory OH 10.00 40% 4.00 Total 10.00 Existing Time Per Part 4.00 Minutes Cost Per Minute 2.50 (10/4) Reduction in Time 1.00 (4-3) Cost Per Minute 2.50 Saving Injection molding productivity improvement 2.50 (1*2.50)
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