6- An electronics manufacturing company is planning to introduce a new product i
ID: 2786698 • Letter: 6
Question
6- An electronics manufacturing company is planning to introduce a new product in the market. The best competitor sells a similar product at $420/unit. Other pertinent data are as follows:
Production hours: 2.61 hours /unit
Direct labor cost: $15.00/hour
Factory overhead: 120% of direct labor
Production materials: $300/unit
Packing cost: 20% of direct labor
The profit margin is based on the total manufacturing costs.
(a) using the information given, determine the maximum profit margin that the company can have so as to remain competitive.
(b) if the company desires a profit margin of 15%, can the target cost be achieved? If not, suggest two ways in which the target cost can be achieved.
Direct labor = ($15/hour)(2.61 hours/unit) = $39.15/unit
Factory overhead = (1.2)($39.15/unit) = $46.98/unit
Production material = $300/unit
Packing costs = (0.2)($39.15/unit) = $ 7.83/unit
_____________
Total manufacturing cost = $393.96/unit
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7- In Mart‘s early stages of design, engineers believed that the cost of a Mart spacecraft is related to its weight. Six spacecraft cost and weight data have been collected and normalized (in the next table).
A plot of the data suggests a linear relationship.
Use a spreadsheet model to determine the values of the coefficients for the CER.
Determine the SE and the correlation coefficient for the CER developed.
Spacecraft Weight (lb) Cost ($ million)
1 400 278
2 530 414
3 750 557
4 900 689
5 1,130 740
6 1,200 851
Explanation / Answer
1a) Direct Manufacturing Costs per unit =$393.96
Price of nearest competitor product =$420.00
Maximum Profit =$420 - 393.96 =$26.04
Maximum Profit Margin =Profit/Salesx100 =26.04/420x100 = 6.2%
1b) Target Profit Margin =15%
=> Profit/Sales =0.15
=> Profit = 0.15x420 =$63
Maximum Manufacturing Target Cost =$420-63 =$357
Since, this target cost is lower than the current manufacturing cost, hence the target cost cannot be achieved.
Two ways in which the target cost can be achieved is:
-> Reducing the raw material cost which is currently $300
-> Reducing the direct labor cost by either incresing the number of units produced per hour or by increasing the skill level of workers by imparting them suitable training
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