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Tuesday, February 1, 2011

Target Costing -Weekend Golfer

Solution is available here for U$1.00

Jared Monsma, Weekend Golfer's vice president for marketing has concluded from his market analysis
that sales have been dwindling for the standard golf cart because of aggressive pricing by competitors.
Weekend Golfer sells these golf carts online for $3000
whereas the competition sells a comparable cart online in the $2800 range.
Jared has determined that dropping the price to $2,850 would regain the firm's annual market share of 8,000 golf carts.
Cost data based on sales of 8,000 gas golf carts follow:


Budgeted Amount
Actual Amount
Actual Cost
Direct Materials
$4,200,000
$4,500,000
Direct labor
100,000 hrs
125,000 hrs
1,750,000
Machine setups
75,000 hrs
75,000 hrs
750,000
Mechanical assembly
375,000 hrs
400,000 hrs
5,000,000
Input data (from above):
     On-line selling price per unit =
$3,000
     Competitor's on-line selling price per unit =
$2,900
     Recommeded selling price by Weekend Golfer =
$2,850
     Normal sales volume per year by Weekend Golfer =
8,000
Required
1. Calculate the current cost and profit per unit
2. How much of the current cost per unit is attributable to non value added activities?
3. Calculate the new target cost per unit for a sales price of $2,850 if the profit per unit is maintained.
4. What strategy do you sugguest for Weekend Golfer to attain the target cost calculated in requirement 3?

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