Problem19.2A
a.The target cost for KAP1= target price－profit
margin=$120-15%×$120=$120×85%=$102
The target cost for QUIN=$220×85%=$187
b. Total manufacturing for KAP1=($30+$24)×25,000+(24÷2×3×25,000)+
[2,000,000÷(25,000+15,000)×25,000]=$2,750,000
b.So the total manufacturing cost per unit of KAP1=$2,750,000÷25,000=$110>$102 The same as KAP1, the total manufacturing cost for QUIN=$2,550,000
So the total manufacturing cost per unit of QUIN=$2,550,000÷15,000=$170<$187 So QUIN is earning the desired return.
c. Because the overhead costs are assigned on the basis of the direct labor hours, so we need to recalculate it.
The total manufacturing cost for KAP1=($30+$24)×25,000+(24÷2×3×25,000)+ [2,000,000÷(24/12×25,000+60/12×15,000)*24/12×25,000=$2,300,000
c.So the total manufacturing cost per unit of KAP1=$2,300,000÷25,000=$92<$102 The same as KAP1, the total manufacturing cost for QUIN=$3,000,000
So the total manufacturing cost per unit of QUIN=$3,000,000÷15,000=$200>$187 So QUIN is earning the desired return.
d. Using the activity-based costing method, the total manufacturing cost for KAP1= 400,000*1/5+600,000*2/3+500,000*2/6+200,000*5/8+300,000*3/5+($30+$24)×25,0 00+(24÷2×3×25,000)=$910,000
d.So the total manufacturing cost per unit of KAP1=$96.4<$102
The same as the KAP1, the total manufacturing cost for QUIN=$2,890,000
So the total manufacturing cost per unit of QUIN=$2,890,000÷15,000=$192.67>$187 So KAP1 is earning the desired return.
e. Because the activities of machining, purchase orders and shipping to customers are value-added activities, so the proportion of fixed overhead=(600,000+500,000+300,000）÷2,000,000=70%
In attempting to reach the target cost for QUIN, we would like to improve the activity of machine set-ups first because its proportion of all overhead cost is relatively big and it is easiest for the manufacturer to make the adjustment to lower down the target cost.
f. Impact: the manufacturing cost of KAP1 increased and that of QUIN decreased. The new manufacturing cost per unit of KAP1=$106>$102
The new manufacturing cost per unit of QUIN=$176.67<$187
So QUIN is earning the desired return.
g. If the machine was purchased, the manufacturing cost of KAP1=$2,370,000
and the new manufacturing cost per unit of KAP1=$2,370,000÷25,000=$94.8<$102 And the manufacturing cost of QUIN=$2,730,000
The new manufacturing cost per unit of QUIN=$2,730,000÷15,000=$183<$187 Both of the KAP1 and QUIN are earning the desired return, so the machine should be purchased.。