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Computing Target Cost and Marketing

Mangement at Fox Valley Machine Tool Co. is comsidering the development of a new automated drill press called the Auto Drill. After conferring with the design engineers, the controll'ers staff assembled the following data about the product:

TARGET SELLING PRICE $6,000 PER UNIT
DESIRED PROFIT PERCENTAGE 20% OF TOTAL UNIT COST
PROJECTED UNIT DEMAND 4,500
ACTIVITY BASED COST RATES
MATERIAL HANDLING 5% OF DIRECT MATERIALS AND PURCHASED PARTS COST
ENGINERING $300 PER UNIT FOR AUTODRILL
PRODUCTION AND ASSEMBLY $50 PER MACHINE HOUR
DELIVERY $570 PER UNIT FOR AUTO DRILL
MARKETING $400 PER UNIT FOR AUTO DRILL
PER-UNIT DATA
DIRECT MATERIAL COST $1,620
PURCHASED PARTS COST $200
MANUFACTURING LABOR
HOURS 6
HOURLY LABOR RATE $14
ASSEMBLY LABOR
HOUR 10
HOURLY LABOR RATE $15
MACHINE HOURS 30

1-Compute the product's target cost
2-Compute the product's projected unit cost based on the design engineer's estimates
3-Should management produce and market the autodrill? Defend your answer.

Solution Summary

The solution assists with computing target cost and marketing.

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