Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 13, Problem 13.37P
Value engineering, target pricing, and locked-in costs. Sylvan Creations designs, manufactures, and sells modern wood sculptures. Sandra Johnson is an artist for the company. Johnson has spent much of the past month working on the design of an intricate abstract piece. Jim Chase, product development manager, likes the design. However, he wants to make sure that the sculpture can be priced competitively. Ellen Cooper, Sylvan’s cost accountant, presents Chase with the following cost data for the expected production of 75 sculptures:
| Design cost | $10,000 |
| Direct materials | 80,000 |
| Direct manufacturing labor | 27,500 |
| Variable manufacturing |
10,000 |
| Fixed manufacturing overhead | 42,500 |
| Fixed marketing costs | 17,500 |
- 1. Chase thinks that Sylvan Creations can successfully market each piece for $3,000. To earn the required return on capital, the company’s target operating income per unit is 20% of target price. Calculate the target full cost per unit of producing the 75 sculptures. Does the cost estimate Cooper developed meet Sylvan’s requirements? Is value engineering needed? What is the total target operating income for the 75 sculptures?
- 2. Chase believes that competition will require Sylvan to reduce the price of the sculpture to $2,800. Rather than using the highest-grade wood available, Sylvan could use standard grade wood and lower the cost of direct materials by 25%. This redesign will require an additional $1,500 of design cost. Will this design change allow Sylvan to earn its total target operating income on the 75 sculptures? Is the cost of wood a locked-in cost?
- 3. If the price of the sculpture is $2,800, what is the total amount Sylvan can spend on direct materials for the 75 sculptures to earn the total target operating income calculated in requirement 1. What is the target cost per sculpture?
- 4. What challenges might managers at Sylvan Creations encounter in achieving the target cost and how
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Pacific Decor, Inc., designs, manufactures, and sells contemporary wood furniture. Ling Li is
a furniture designer for Pacific. Li has spent much of the past month working on the design
of a high-end dining room table. The design has been well-received by
Jose Alvarez, the product development manager. However, Alvarez wants to make sure that
the table can be priced competitively. Amy Hoover, Pacific's cost accountant, presents
Alvarez with the following cost data for the expected production of 200 tables:
Design cost
$ 5,000
Direct materials
120,000
Direct manufacturing labor
Variable manufacturing overhead
Fixed manufacturing overhead
142,000
64,000
46,500
Marketing
15,000
1. Alvarez thinks that Pacific can successfully market the table for $2,000. The
company's target operating income is 10% of revenue. Calculate the target full cost
of producing the 200 tables. Does the cost estimate developed by Hoover meet
Pacific's requirements? Is value engineering needed?
2. Alvarez discovers…
Sylvan Creations designs, manufactures, and sells modern wood sculptures. Sandra Johnson is an artist for the company. Johnson has spent much of the past month working on the design of an intricate abstract piece. Jim Chase, product development manager, likes the design. However, he wants to make sure that the sculpture can be priced competitively. Ellen Cooper, Sylvan’s cost accountant, presents Chase with the following cost data for the expected production of 75 sculptures:
Design cost $10,000
Direct materials 80,000
Direct manufacturing labor 27,500
Variable manufacturing overhead 10,000
Fixed manufacturing overhead 42,500
Fixed marketing costs 17,500
Q.What challenges might managers at Sylvan Creations encounter in achieving the target cost and how might they overcome these challenges?
Sylvan Creations designs, manufactures, and sells modern wood sculptures. Sandra Johnson is an artist for the company. Johnson has spent much of the past month working on the design of an intricate abstract piece. Jim Chase, product development manager, likes the design. However, he wants to make sure that the sculpture can be priced competitively. Ellen Cooper, Sylvan’s cost accountant, presents Chase with the following cost data for the expected production of 75 sculptures:
Design cost $10,000
Direct materials 80,000
Direct manufacturing labor 27,500
Variable manufacturing overhead 10,000
Fixed manufacturing overhead 42,500
Fixed marketing costs 17,500
Q.Chase believes that competition will require Sylvan to reduce the price of the sculpture to $2,800. Rather than using the highest-grade wood available, Sylvan could use standard grade wood and lower the cost of direct materials by 25%. This redesign will require an additional $1,500 of design cost. Will this design change allow…
Chapter 13 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 13 - What are the three major influences on pricing...Ch. 13 - Relevant costs for pricing decisions are full...Ch. 13 - Describe four purposes of cost allocation.Ch. 13 - How is activity-based costing useful for pricing...Ch. 13 - Describe two alternative approaches to long-run...Ch. 13 - What is a target cost per unit?Ch. 13 - Describe value engineering and its role in target...Ch. 13 - Give two examples of a value-added cost and two...Ch. 13 - It is not important for a company to distinguish...Ch. 13 - Prob. 13.10Q
Ch. 13 - Describe three alternative cost-plus pricing...Ch. 13 - Give two examples in which the difference in the...Ch. 13 - What is life-cycle budgeting?Ch. 13 - What are three benefits of using a product...Ch. 13 - Prob. 13.15QCh. 13 - Which of the following statements regarding price...Ch. 13 - Value-added, non-value-added costs. The Magill...Ch. 13 - Target operating income, value-added costs,...Ch. 13 - Target prices, target costs, activity-based...Ch. 13 - Target costs, effect of product-design changes on...Ch. 13 - Target costs, effect of process-design changes on...Ch. 13 - Cost-plus target return on investment pricing....Ch. 13 - Cost-plus, target pricing, working backward....Ch. 13 - Life-cycle budgeting and costing. Arnold...Ch. 13 - Considerations other than cost in pricing...Ch. 13 - Cost-plus, target pricing, working backward. The...Ch. 13 - Value engineering, target pricing, and target...Ch. 13 - Target service costs, value engineering,...Ch. 13 - Cost-plus, target return on investment pricing....Ch. 13 - Cost-plus, time and materials, ethics. C S...Ch. 13 - Cost-plus and market-based pricing. Georgia Temps,...Ch. 13 - Cost-plus and market-based pricing. (CMA, adapted)...Ch. 13 - Life-cycle costing. Maximum Metal Recycling and...Ch. 13 - Airline pricing, considerations other than cost in...Ch. 13 - Prob. 13.35PCh. 13 - Ethics and pricing. Instyle Interior Designs has...Ch. 13 - Value engineering, target pricing, and locked-in...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Sylvan Creations designs, manufactures, and sells modern wood sculptures. Sandra Johnson is an artist for the company. Johnson has spent much of the past month working on the design of an intricate abstract piece. Jim Chase, product development manager, likes the design. However, he wants to make sure that the sculpture can be priced competitively. Ellen Cooper, Sylvan’s cost accountant, presents Chase with the following cost data for the expected production of 75 sculptures: Design cost $10,000 Direct materials 80,000 Direct manufacturing labor 27,500 Variable manufacturing overhead 10,000 Fixed manufacturing overhead 42,500 Fixed marketing costs 17,500 Q. Chase thinks that Sylvan Creations can successfully market each piece for $3,000. To earn the required return on capital, the company’s target operating income per unit is 20% of target price. Calculate the target full cost per unit of producing the 75 sculptures. Does the cost estimate Cooper developed meet Sylvan’s requirements?…arrow_forwardWood Creations designs, manufactures, and sells modern wood sculptures. Sally Jensen is an artist for the company. Jensen has spent much of the past month working on the design of an intricate abstract piece. Jim Smoot, product development manager, likes the design. However, he wants to make sure that the sculpture can be priced competitively. Alexis Nampa, Wood's cost accountant, presents Smoot with the following cost data for the expected production of 75 sculptures: $ 8,000 30,000 37,000 33,000 25,000 15,000 Design cost Direct materials Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead Marketing Required: 1. Smoot thinks that Wood Creations can successfully market each piece for $2,400. The company's target operating income is 20% of revenue. a.) Wood Creations has a total capital investment of $240,000. Compute the target percentage of return on investment. b.) Calculate the markup percentage on full cost based on the current cost data. c.)…arrow_forwardMary Jones and Jack Smart have joined forces to start M&J Food Products, a processor of packaged shredded lettuce for institutional use. Jack has years of food processing experience, and Mary has extensive commercial food preparation experience. The process will consist of opening crates of lettuce and then sorting, washing, slicing, preserving, and finally packaging the prepared lettuce. Together, with help from vendors, they think they can adequately estimate demand, fixed costs, revenues, and variable cost per 5-pound bag of lettuce. They think a largely manual process will have monthly fixed cost of $50,000 and a variable cost of $2.50 per bag. They expect to sell 75,000 bags of lettuce per month. They expect to sell the shredded lettuce for $3.25 per 5-pound bag. Jack and Mary has been contacted by a vendor to consider a more mechanized process. This new process will have monthly fixed cost of $125,000 per month with a variable cost of $1.75 per bag. Based on the above…arrow_forward
- Mary Jones and Jack Smart have joined forces to start M&J Food Products, a processor of packaged shredded lettuce for institutional use. Jack has years of food processing experience, and Mary has extensive commercial food preparation experience. The process will consist of opening crates of lettuce and then sorting, washing, slicing, preserving, and finally packaging the prepared lettuce. Together, with help from vendors, they think they can adequately estimate demand, fixed costs, revenues, and variable cost per 5-pound bag of lettuce. They think a largely manual process will have monthly fixed cost of $50,000 and a variable cost of $2.50 per bag. They expect to sell 75,000 bags of lettuce per month. They expect to sell the shredded lettuce for $3.25 per 5-pound bag. Jack and Mary has been contacted by a vendor to consider a more mechanized process. This new process will have monthly fixed cost of $125,000 per month with a variable cost of $1.75 per bag. Based on the above…arrow_forwardDanielle Hastings was recently hired as a cost analyst by CareNet Medical Supplies Inc. One of Danielle’s first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is very intent on purchasing the warehouse because he believes that more storage space is needed. Jerrod asks Danielle into his office and the following conversation takes place: Jerrod: Danielle, you’re new here, aren’t you? Danielle: Yes, I am. Jerrod: Well, Danielle, I’m not at all pleased with the capital investment analysis that you performed on this new warehouse. I need that warehouse for my production. If I don’t get it, where am I going to place our output? Danielle: Well, we need to get product into our customers’ hands. Jerrod: I agree, and we need a warehouse to do that. Danielle: My analysis does not support constructing a new warehouse. The numbers don’t lie; the warehouse does…arrow_forwardDanielle Hastings was recently hired as a cost analyst by CareNet Medical Supplies Inc. One of Danielle's first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is intent on purchasing the warehouse because he believes that more storage space is needed. Jerrod asks Danielle to come to his office, where the following conversation takes place: Jerrod: Danielle, you're new here, aren't you? Danielle: Yes, I am. Jerrod: Well, Danielle, I'm not at all pleased with the capital investment analysis that you performed on this new warehouse. I need that warehouse for my production. If I don't get it, where am I going to place our output? Danielle: Well, we need to get product into our customers' hands. Jerrod: I agree, and we need a warehouse to do that. Danielle: My analysis does not support constructing a new warehouse. The numbers…arrow_forward
- AnimPax Inc. is a small company that creates computer generated animations for films and television. Much of the company’s work consists of short commercials for Television but the company also does realistic computer animations for special effect in movies. The young founders of the company have increasingly concerned with the economics of the business particularly since many competitors have sprung up recently in the local area. To help understand the company’s cost structure and ABC system has been designed. Three major activities are carried out in the company animation concept. Animation production and contract administration. The animation concept activity is carried out at the contract proposal stage when the company bids on projects. This is an intensive activity that involves individuals from all parts of the company in creating storyboards and prototype stills to be shown to the prospective client after the client has accepted a project the animation goes into production and…arrow_forwardBarbara, the manager of Metlock, is analyzing the company's MOH costs from last year. Metlock had always followed an actual costing system when determining the costs of its customizable telescopes. Barbara wondered if it would be better to switch to a normal costing system, as she had heard a number of people talking about that at an industry conference she attended the previous month. Since Metlock has a highly machine-intensive operation, machine hours are used as its MOH cost driver. Here are the costs and other MOH information Barbara is analyzing: Budgeted MOH cost Actual MOH cost Budgeted machine hours Actual machine hours $426,240 Actual MOH rate $ 419,040 Determine the actual MOH rate and the budgeted MOH rate Metlock would have used last year under actual costing and normal costing, respectively. (Round answers to 2 decimal places, e.g. 52.75.) Budgeted MOH rate $ 96,000 108,000 /machine hour /machine hourarrow_forwardKara Meyer, owner of Flower Power, operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery fee, Meyer wants to set the delivery fee based on the distance driven to deliver the flowers. Meyer wants to separate the fixed and variable portions of her van operating costs so that she has a better idea how delivery distance affects these costs. She has the following data from the past seven months: (Click the icon to view the data.) Read the requirements. Requirement 1. Determine the company's cost equation (use the output from the Excel regression). (Ro y = x + Data table Month January.. February March April May June July Miles Driven 16,400 17,500 15,000 16,100 17,300 15,600 14,500 Print Van Operating Costs $5,480 $5,400 $4,950 $5,270 $5,740 $5,440 $4,680 Done - Xarrow_forward
- Pixel Studio, Inc., is a small company that creates computer-generated animations for films and television. Much of the company’s work consists of short commercials for television, but the company also does realistic computer animations for special effects in movies. The young founders of the company have become increasingly concerned with the economics of the business—particularly since many competitors have sprung up recently in the local area. To help understand the company’s cost structure, an activity-based costing system has been designed. Three major activities are carried out in the company: animation concept, animation production, and contract administration. The animation concept activity is carried out at the contract proposal stage when the company bids on projects. This is an intensive activity that involves individuals from all parts of the company in creating story boards and prototype stills to be shown to the prospective client. Once a project is accepted by the…arrow_forwardPixel Studio, Incorporated, is a small company that creates computer-generated animations for films and television. Much of the company’s work consists of short commercials for television, but the company also does realistic computer animations for special effects in movies. The young founders of the company have become increasingly concerned with the economics of the business—particularly since many competitors have sprung up recently in the local area. To help understand the company’s cost structure, an activity-based costing system has been designed. Three major activities are carried out in the company: animation concept, animation production, and contract administration. The animation concept activity is carried out at the contract proposal stage when the company bids on projects. This is an intensive activity that involves individuals from all parts of the company in creating story boards and prototype stills to be shown to the prospective client. Once a project is accepted by…arrow_forwardPurposes of cost allocation. Mary Martin recently started a job as an administrative assistant in the cost accounting department of Needham Manufacturing. New to the area of cost accounting, Mary is puzzled by the fact that one of Needham’s manufactured products, SR670, has a different cost depending on who asks for it. When the marketing department requested the cost of SR670 in order to determine pricing for the new catalog, Mary was told to report one amount, but when a request came in the very next day from the financialreporting department for the cost of SR670, she was told to report a very different cost. Mary runs a report using Needham’s cost accounting system, which produces the following cost elements for one unit of SR670:arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Cost Classifications - Managerial Accounting- Fixed Costs Variable Costs Direct & Indirect Costs; Author: Accounting Instruction, Help, & How To;https://www.youtube.com/watch?v=QQd1_gEF1yM;License: Standard Youtube License