Question

Laser Cast, Inc., manufactures color laser printers. Model J20 presently sells for $150 and has a total product cost of $120, as follows:

Direct materials	$90
Direct labor	20
Factory overhead	10
Total	$120

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.

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

Feedback

Answer 1

	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)