المحاسب الإداري المعتمد الجزء 2 C. Decision Analysis

Quillmere: From Markup Pricing to Target Costing

Quillmere Acoustics

Question of 7 Quillmere: From Markup Pricing to Target Costing

Quillmere: From Markup Pricing to Target Costing Case-based question

الحالة

Quillmere Acoustics manufactures sound-absorbing wall and ceiling panels for offices, schools and recording studios. It sells four finishes, packed in cartons, to interior fit-out contractors. Architects normally specify panels with a certified fire rating, and all of Quillmere's panels carry that certification.

Current pricing policy. Quillmere prices each carton by taking its direct materials and direct labor cost and adding a markup equal to 50% of that amount. The markup is meant to cover manufacturing overhead, selling and administrative expenses, interest and profit. Whenever a carton's materials or labor cost changes, the price list is recalculated with the same 50% markup, so cost changes flow straight through to customers.

20X4 results by finish:

Finish	Direct materials per carton	Direct labor per carton	Price per carton	Cartons sold	Revenue
Felt Tile	$54	$30	$126	9,000	$1,134,000
Oak Slat	$96	$54	$225	3,200	$720,000
Fabric Wrap	$70	$42	$168	5,500	$924,000
Perforated Metal	$91	$45	$204	4,100	$836,400
Total				21,800	$3,614,400

20X4 condensed income statement:

Item	Amount
Revenue	$3,614,400
Direct materials	(1,551,300)
Direct labor	(858,300)
Manufacturing overhead	(610,000)
Selling expenses	(236,000)
Administrative expenses	(172,000)
Interest expense	(58,000)
Income before income tax	128,800
Income tax at 24%	(30,912)
Net income	$97,888

The proposal. Contractors have told Quillmere that its felt and metal cartons cost more than comparable certified panels, while its oak cartons are priced well below them. The CFO proposes replacing the markup policy with target costing for 20X5. A distributor survey gives the following prices per carton. The importer's panels do not carry a certified fire rating, so architects rarely accept them as substitutes. Quillmere would therefore set each target price at the average of the two certified rivals' prices.

Finish	Importer (uncertified)	Rival B (certified)	Rival C (certified)	Quillmere target price
Felt Tile	$92	$116	$120	$118
Oak Slat	$180	$232	$246	$239
Fabric Wrap	$139	$166	$178	$172
Perforated Metal	$151	$188	$202	$195

Under the proposal, each finish's allowable direct materials and direct labor cost is 65% of its target price. The remaining 35% of the price must cover overhead, selling, administration, interest and profit.

Quillmere also plans two process improvements for 20X5. An automated edge-finishing cell will cut direct labor cost per carton by 12% for every finish. Ending the lease on an overflow warehouse and consolidating finishing work onto one shift will cut manufacturing overhead by $85,000 a year.

الافتراضات

In 20X5 Quillmere sells the same number of cartons of each finish as in 20X4; the new prices do not change volumes. Every carton produced is sold, so inventory does not change.
Direct materials cost per carton does not change in 20X5. The 12% labor saving applies to the direct labor cost per carton of every finish. Apart from the fixed $85,000 a year saving, manufacturing overhead stays at its 20X4 amount of $610,000.
Selling expenses, administrative expenses and interest expense stay at their 20X4 dollar amounts; they do not vary with prices or volumes.
Income tax is 24% of income before income tax. Net profit margin means net income after tax divided by revenue.
The projected 20X5 scenario combines the target prices with both process improvements.

Under Quillmere's current pricing policy, which amount does the calculation of a carton's selling price begin with?

الإجابة The average price that certified rivals charge for a comparable carton. The carton's direct materials and direct labor cost, to which the 50% markup is then added. The carton's full manufacturing cost, including a share of manufacturing overhead, to which the 50% markup is then added. The profit Quillmere wants to earn on each carton, to which the expected costs are then added.

Complete the analysis of Quillmere's proposal. In target costing, the process of setting a product's cost starts from Starting point of target costing . Applying the 65% rule, Felt Tile's allowable direct materials and direct labor cost is Felt Tile allowable cost per carton. After the 12% labor saving, Felt Tile's direct materials and direct labor cost per carton would be Felt Tile cost after the labor saving compared with its allowable cost that allowable cost. Of the two approaches, Approach that puts more pressure on cost puts more pressure on production managers to cut materials and labor cost.

Select the TWO statements that correctly describe target costing.

اختيار إجابتين. المحدد 0 / 2

الإجابة The allowable cost is found by working back from a price customers will accept and reserving the margin the company requires; expected cost is compared with it. The target price is found by adding the required profit to the expected cost of the improved process, and is then compared with rivals' prices as a reasonableness check. Cost reduction is concentrated at the design stage, through product, process and supplier choices, because much of a product's cost is committed before production begins. It is best suited to a seller with strong pricing power in its market, whose customers readily accept a higher price whenever its materials or labor costs rise. Once a finish's expected cost is brought within its allowable cost, the target price and allowable cost stay fixed for the rest of that finish's life, giving a stable cost target.

Quillmere's controller is preparing the projected 20X5 income statement under target pricing, after both process improvements. Select the TWO amounts that are correct for that statement.

اختيار إجابتين. المحدد 0 / 2

الإجابة Direct materials of $1,365,144 Direct labor of $755,304 Total expenses before income tax of $3,382,604 Manufacturing overhead of $525,000 Income before income tax of $358,896

By how much would Quillmere's total annual revenue change if the target prices replaced the current prices and cartons sold of each finish stayed at their 20X4 levels? Enter the answer in whole US dollars, with a leading minus sign for a decrease (for example, -5000) and no sign for an increase. No rounding is needed.

الإجابة USD

رقم صحيح. يمكن كتابة المبلغ السالب بإشارة ناقص أو بين قوسين.

In the controller's 20X5 budget, cartons sold of each finish stay at their 20X4 levels. By how many dollars a year will the edge-finishing cell and the warehouse consolidation together lower Quillmere's manufacturing costs compared with 20X4? Enter a positive amount in whole US dollars. No rounding is needed.

الإجابة USD

رقم صحيح.

Using the controller's 20X5 projection (target prices and both process improvements), what net profit margin will Quillmere earn? Enter the margin as a percentage (for example, enter 3.25 for 3.25%), keep full precision until the final step, and round half up to two decimal places.

الإجابة percent

بـ 2 منازل عشرية.

تظهر الدرجات والإجابات الصحيحة والشروح فور تسليم الإجابات. ولا يحصل السؤال غير المُجاب على أي درجة.

جارٍ الفحص…

حالات تدريبية أصلية من إعداد صرح. ليست أسئلة من امتحانات IMA، ويخضع تصحيحها لسياسة صرح الخاصة، وهي تختلف عن سياسة الامتحان الرسمي.