Timberlake Company owns equipment with a cost of $165,000 and accumulated depreciation of$60,000 that can be sold for $82,000, less a 6% sales commission. Alternatively, the equipment can be leased by Timberlake Company for five years for a total of$84,600, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Timberlake Company on the equipment would total $7,950 over the five years. Prepare a differential analysis on March 23, 2014, as to whether Timberlake Company should lease (Alternative 1) or sell (Alternative 2) the equipment.

Instant Image Inc. manufactures color laser printers. Model J20 presently sells for $460 and has a product cost of$230, as follows:

$$\begin{array}{lr} \text{Direct materials} & \$175\\ \text{Direct labor} & 40\\ \text{Factory overhead} & \underline{15}\\ \text{Total} & \underline{\underline{\$230}}\\ \end{array}$$

It is estimated that the competitive selling price for color laser printers of this type will drop to $400 next year. Instant Image has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas:

1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 15 minutes per unit.

2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by$20 per unit.

3. Decrease the cycle time of the injection-molding machine from four minutes to three minutes per part. Forty percent of the direct labor and 48% of the factory overhead are related to running injection-molding machines.

The direct labor rate is $30 per hour. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved.

Instant Image Inc. manufactures color laser printers. Model J20 presently sells for $460 and has a product cost of$230, as follows:

$$\begin{array}{lr} \text{Direct materials} & \$175\\ \text{Direct labor} & 40\\ \text{Factory overhead} & \underline{15}\\ \text{Total} & \underline{\underline{\$230}}\\ \end{array}$$

It is estimated that the competitive selling price for color laser printers of this type will drop to $400 next year. Instant Image has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas:

1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 15 minutes per unit.

2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by$20 per unit.

3. Decrease the cycle time of the injection-molding machine from four minutes to three minutes per part. Forty percent of the direct labor and 48% of the factory overhead are related to running injection-molding machines.

The direct labor rate is $30 per hour. Determine the required cost reduction.

Instant Image Inc. manufactures color laser printers. Model J20 presently sells for $460 and has a product cost of$230, as follows:

$$\begin{array}{lr} \text{Direct materials} & \$175\\ \text{Direct labor} & 40\\ \text{Factory overhead} & \underline{15}\\ \text{Total} & \underline{\underline{\$230}}\\ \end{array}$$

It is estimated that the competitive selling price for color laser printers of this type will drop to $400 next year. Instant Image has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas:

1. Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 15 minutes per unit.

2. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by$20 per unit.

3. Decrease the cycle time of the injection-molding machine from four minutes to three minutes per part. Forty percent of the direct labor and 48% of the factory overhead are related to running injection-molding machines.

The direct labor rate is $30 per hour. Determine the target cost for Model J20, assuming that the historical markup on product cost and selling price is maintained.

Toyota Motor Corporation uses target costing. Assume that Toyota marketing personnel estimate that the competitive selling price for the Camry in the upcoming model year will need to be $28,000. Assume further that the Camry’s total unit cost for the upcoming model year is estimated to be$23,200 and that Toyota requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost).

b. What impact will target costing have on Toyota, given the assumed information?

Toyota Motor Corporation uses target costing. Assume that Toyota marketing personnel estimate that the competitive selling price for the Camry in the upcoming model year will need to be $28,000. Assume further that the Camry’s total unit cost for the upcoming model year is estimated to be$23,200 and that Toyota requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost).

a. What price will Toyota establish for the Camry for the upcoming model year?

Smart Stream Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cellular phones are as follows:

$$\begin{array}{lrlrrr} \textbf{Variable costs:} && \textbf{Fixed costs:}\\ \\ \text{Direct materials} & \text{\$150 per unit} & \text{Factory overhead} & \text{\$350,000}\\ \text{Direct labor} & 25& \text{Selling and admin. exp.} & 140,000\\ \text{Factory overhead} & 40\\ \text{Selling and admin. exp.} & \underline{25}\\ \text{Total} & \underline{\underline{\text{\$240 per unit}}}\\ \end{array}$$

Smart Stream desires a profit equal to a 30% rate of return on invested assets of $1,200,000.

Determine the selling price of cellular phones.

Smart Stream Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cellular phones are as follows:

$$\begin{array}{lrlrrr} \textbf{Variable costs:} && \textbf{Fixed costs:}\\ \\ \text{Direct materials} & \text{\$150 per unit} & \text{Factory overhead} & \text{\$350,000}\\ \text{Direct labor} & 25& \text{Selling and admin. exp.} & 140,000\\ \text{Factory overhead} & 40\\ \text{Selling and admin. exp.} & \underline{25}\\ \text{Total} & \underline{\underline{\text{\$240 per unit}}}\\ \end{array}$$

Smart Stream desires a profit equal to a 30% rate of return on invested assets of $1,200,000.

Determine the product cost markup percentage for cellular phones.

Smart Stream Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cellular phones are as follows:

$$\begin{array}{lrlrrr} \textbf{Variable costs:} && \textbf{Fixed costs:}\\ \\ \text{Direct materials} & \text{\$150 per unit} & \text{Factory overhead} & \text{\$350,000}\\ \text{Direct labor} & 25& \text{Selling and admin. exp.} & 140,000\\ \text{Factory overhead} & 40\\ \text{Selling and admin. exp.} & \underline{25}\\ \text{Total} & \underline{\underline{\text{\$240 per unit}}}\\ \end{array}$$

Smart Stream desires a profit equal to a 30% rate of return on invested assets of $1,200,000.

Determine the product cost and the cost amount per unit for the production of 10,000 cellular phones.

Smart Stream Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cellular phones are as follows:

$$\begin{array}{lrlr} \textbf{Variable costs:} && \textbf{Fixed costs:}\\ \\ \text{Direct materials} & \text{\$150 per unit} & \text{Factory overhead} & \text{\$350,000}\\ \text{Direct labor} & 25& \text{Selling and admin. exp.} & 140,000\\ \text{Factory overhead} & 40\\ \text{Selling and admin. exp.} & \underline{25}\\ \text{Total} & \underline{\underline{\text{\$240 per unit}}}\\ \end{array}$$

Smart Stream desires a profit equal to a 30% rate of return on invested assets of $1,200,000.

Determine the amount of desired profit from the production and sale of 10,000 cellular phones.

Parisian Accessories Inc. produces women’s handbags. The cost of producing 800 handbags is as follows:

$$\begin{array}{lr} \text{Direct materials} & \$15,000\\ \text{Direct labor} & 7,000\\ \text{Factory overhead} & \underline{5,000}\\ \text{Total manufacturing cost} & \underline{\underline{\$27,000}}\\ \end{array}$$

The selling and administrative expenses are $24,000. The management desires a profit equal to 15% of invested assets of$200,000.

Determine the selling price of handbags.

Parisian Accessories Inc. produces women’s handbags. The cost of producing 800 handbags is as follows:

$$\begin{array}{lr} \text{Direct materials} & \$15,000\\ \text{Direct labor} & 7,000\\ \text{Factory overhead} & \underline{5,000}\\ \text{Total manufacturing cost} & \underline{\underline{\$27,000}}\\ \end{array}$$

The selling and administrative expenses are $24,000. The management desires a profit equal to 15% of invested assets of$200,000.

Determine the product cost markup percentage for handbags.

Parisian Accessories Inc. produces women’s handbags. The cost of producing 800 handbags is as follows:

$$\begin{array}{lr} \text{Direct materials} & \$15,000\\ \text{Direct labor} & 7,000\\ \text{Factory overhead} & \underline{5,000}\\ \text{Total manufacturing cost} & \underline{\underline{\$27,000}}\\ \end{array}$$

The selling and administrative expenses are $24,000. The management desires a profit equal to 15% of invested assets of$200,000.

Determine the product cost per unit for the production of 800 handbags.

Parisian Accessories Inc. produces women’s handbags. The cost of producing 800 handbags is as follows:

$$\begin{array}{lr} \text{Direct materials} & \$15,000\\ \text{Direct labor} & 7,000\\ \text{Factory overhead} & \underline{5,000}\\ \text{Total manufacturing cost} & \underline{\underline{\$27,000}}\\ \end{array}$$

The selling and administrative expenses are $24,000. The management desires a profit equal to 15% of invested assets of$200,000.

Determine the amount of desired profit from the production and sale of 800 handbags.