Young Joon Corp. is considering marketing two new graphic calculators, named Speed-Calc 4 and Speed-Calc 5. According to the recent market research, the two products will surpass the current competition in both speed and quality and would be welcomed in the market. Customers would be willing to pay $98 for Speed-Calc 4 and $110 for Speed-Calc 5, based on the projected design capabilities. Both products have many uses, but the primary market interest comes form college students. Current production capacity exists for the manufacture and assembly of the two products. The company has a minimum desired profit of 25 percent above all costs for all of its products. Current activity-based cost rates are as follows:
Materials /parts handling $1.20 per dollar of direct materials
and purchased parts cost
Production $8.00 per machine hour
Marketing /delivery $4.40 per unit of Speed-Calc 4
$6.20 per unit of Speed-Calc 5
Design engineering and accounting estimates to produce the two new products are as follows:
Speed-Calc 4 Speed-Calc 5
Projected unit demand 100,000 80,000
Per-unit data
Direct materials cost $5.50 $7.50
Computer chip cost $10.60 $11.70
Production labor
Hours 1.2 1.3
Hourly labor rate $16.00 $16.00
Assembly labor
Hours 0.6 0.5
Hourly labor rate $12.00 $12.00
Machine hours 1 1.2
Required:
1. Compute the target costs for each product
2. Compute the projected total unit cost of production and delivery
3. Using the target costing approach, decide whether the products should be produced.