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Caremore: Target Costing for return-on-sales ratio; target costing for banking

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Stacey Yoo, President of Caremore, Inc., an appliance manufactuer in Seattle, Washinton, has been trying to decide whether one of her products-line managers, Bill Mann, has been achieving the companywide return-on-sales target of 45%. Stacy has just received data from the new target costing system regarding Bill's operation. Bill's sales volume was 300,000 appliances with an average selling price of $500 and expenses totaling $90 million.

Determine whether Bill's return-on-sales ratio has met the companywide target. Has Bill done a good job or a poor job? Explain

Imagine that you are the manager of a large bank. Having heard about a management accounting method called target costing, you are wondering whether it can be applied to the banking industry. In particular, you are trying to determine how to benchmark other organizations to gain more information.

a. Can target costing be applied to the banking industry? To what products or services can target costing be applied?

b. Devise a benchmarking plan for the bank. Your plan should include which banks to benchmark with and the kinds of information sought.

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Solution Summary

The solution examines target costing for return-on-sales ratio and target costing for banking for Caremore, Inc.

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Determine whether Bill's return-on-sales ratio has met the companywide target. Has Bill done a good job or a poor job? Explain. Bill has done a poor job as he did not meet the companywide return on sales ratio of 45%. Bill's sales calculations = 300,000 x 500 = 150,000,000 then 150,000,000 - 90,000,000 = 60,000,000. 45% of 150 million is $67,500,000.

Target costing is defined as a disciplined process that uses data and information in a logical series of steps to determine and achieve a target cost for the ...

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