Question

Kallapur company manufactures two products: kap1, which sells for $120; and quin, which sells for $220. estimated cost and production data for the current year are as follows.

Answer 1

The question is incomplete. The complete question is :

Kallapur company manufactures two products: KAP1, which sells for $120; and QUIN, which sells for $220. estimated cost and production data for the current year are as follows :

                                                               KAP1              QUIN

Direct materials cost                             $ 30               $ 45

Direct labor cost (at rate $ 12/hr)          $ 24                $ 60

Estimated production (units)              25,000             15,000

In addition, fixed manufacturing overhead is estimated to be $ 2,000,000 and variable overhead is estimated to equal $ 3 per direct labor hour. Kallapur desires a 15 percent return on sales for all of its products.

Calculate the target cost for both KAP1 and QUIN.

Solution :

It is given that Kallapur company manufactures two products namely KAP1 and QUIN.

Selling cost of KAP1 = $ 120

Selling cost of QUIN = $ 220

∴ $\text{Target cost = target price - target profit}$

Target cost of KAP1

Target price = $ 120

Target profit = $ 120 x 0.15

                     = $ 18

So, $\text{target cost = target price - target profit}$

                        = 120 - 18

                       = $ 102

Target cost of QUIN

Target price = $ 220

Target profit = $ 220 x 0.15

                     = $ 33

So, $\text{target cost = target price - target profit}$

                        = 220 - 33

                       = $ 187