Determine estimated cost, Financial Accounting

XYZ Company is a large manufacturer of auto parts for the auto manufacturers and parts distributors. XYZ has plants throughout the world, but most are located in North America. XYZ is known for the quality of its parts and for the reliability of its operations. Customers receive their orders in a timely manner and there are no errors in the shipment or billing of these orders. For these reasons, XYZ has been able to prosper in a business that is very competitive, with competitors such as Delphi, Visteon and others.

XYZ just received an order for 100 auto parts from National Motors corp., a major auto manufacturer. National proposed a $1,500 selling price per part. XYZ usually earned 20% operating margin as a percent of sales. XYZ recently decided to use target costing in pricing its products. An examination of the production costs by the engineers and accountants showed that this part was assigned a "standard" full cost of $1,425 per part (this includes $1,000 production, $200 marketing, and $225 general & administration costs per part). A value Assessment Group (VAG) undertook a cost reduction program for this part. Two production areas that were investigated were the defective unit rate and the tooling costs. The $1,000 production costs included a normal defective cost of $85 per part. Group leaders suggested that production changes could reduce defective cost to $25 per part.

Forty-five different tools were used to make the auto part. The group discovered that the number of tools could be reduced to 30 and less expensive tools could be used on this part to meet National's product specifications. These changes saved an additional $105 of production cost per part. By studying other problem areas, the group found that general & administration costs could be reduced by $50 per unit through use of electronic data interchange with suppliers and just-in-time inventory management.

In addition, XYZ's sales manager told the Group that National might be willing to pay a higher selling price because of XYZ's quality reputation and reliability. He believed National's proposed price was a starting point for negotiations. Of course, National had made the same offer to some of XYZ's competitors.

REQUIRED

1. What should be XYZ's target cost per auto part? Show calculation.   

2. As a result of the Value Engineering Group's efforts, determine XYZ's estimated cost for the auto part. Will XYZ meet the target cost for the part? Do you recommend that XYZ take on the National offer? Explain your reasons.

Posted Date: 2/23/2013 5:59:37 AM | Location : United States







Related Discussions:- Determine estimated cost, Assignment Help, Ask Question on Determine estimated cost, Get Answer, Expert's Help, Determine estimated cost Discussions

Write discussion on Determine estimated cost
Your posts are moderated
Related Questions
I have an assignment in consolidation accounting and would like to know if you can assist me in doing the assignment for me. I am doing BA in Accounting . Please let me know. Re

Comparison with Sector Averages Any conclusion relating to the signs of overtrading needs to be put in the context of the normal values of accounting ratios indicated by the se

Let us assume that you deposit Rs.1000 in a bank that pays 10 percent interest compounded yearly for a period of 3 years. The deposit will grow as given details: Fir

The December 31, 2005, balance sheet of Far Imports includes the following items: The bonds were issued on December 31, 2004, at 97, with Interest payable on June 30 and December 3

1. You have decided to sell some goods at a local music festival. You have hired a sales stand for $500. Your cost per item is $3 and you will sell each item for $5. When you did y

Beginning balance 24,000 cash Sales 250,000 Gross profit 45% of sales Accounts receivable increase by 24,000 Accounts payable increased by 51,000 Inventory increased by 98,000 Sell

Accounting Policies These financial statements have been prepared under the historical cost basis of accounting which is modified to accommodate the revaluation of certain proper

Partners F and G receive an interest allowance of $10,000 and $15,000, respectively, and divide the remaining profits and losses in a 3:1 ratio. If the company sustained a net loss

Q. Show the Basis of weightings? (i) Both costs of capital (Ke and Kd) as well as the WACC have been calculated using current   ex-dividend (ex-interest) market values rather t

Virtual Learning Inc., an Ontario-based company on the cutting edge of technology, is analyzing the possibility of providing university-level courses for York University. This virt