Topics: Design for X, Costs, Cost Pages: 9 (956 words) Published: May 1, 2014
Final Assessment

Question 1

Carey Manufacturing, Inc., is considering reorganizing its plant into manufacturing cells. The following estimates have been prepared to evaluate the benefits from the reorganization:

Before the change

After the change

Total annual sales

$ 700,000


Costs as percentage of sales:

Direct materials



Direct labor



Support costs



Work-in -process inventory



Inventory carrying costs are estimated to be 12% per year.


Why do the layout reorganization estimates include

from carrying reduced levels of work-in-process inventory?

a decrease in direct material costs as a percentage of sales?

an increase in sales?

As a result of the layout reorganization, what amount of annul change is projected

form carrying reduced levels of work-in-process inventory?

for incremental manufacturing costs?

in total benefits?



1. Layout reorganization estimates include a decrease in work-in-process inventory because cellular manufacturing streamlines production flows. When products flow immediately from one processing stage to the next, there is less build-up of work-in-process inventories.

Question 2

Identify and explain each of the three major cycles of the total-life-cycle-costing approach

How does the total-life-cycle costing approach differ from traditional product-costing? Explain.


Research, Development, and engineering cycle: target costing and value engineering Manufacturing cycle: activity-based costing, Kaizen costing post-sale service and disposal cycle

Each part of value chain is managed by different organizational function it integrates the trade-offs and performance over time and functional units


The three major cycles of the total-life cycle costing approach are: research, development, and engineering (RD&E); manufacturing; and post-sale service and disposal.

The research, development, and engineering cycle has three stages: 1. Using market research to assess emerging customer needs that leads to idea generation for new products;

2. Products design prototypes, production processes, and any special tooling required.

The manufacturing cycle begins after product development. In this cycle, costs are incurred in the production of the product. There is little room for engineering flexibility to influence product costs and product design at this stage.

The post-sale service and disposal cycle consists of three stages:

Rapid growth from the first time the product is slipped through the growth stage of its sales cycle;

2. Transition , form the peak of its sales cycle to the peak in the service cycle, and

Maturity, from the peak in the service cycle to the time of the last shipment made a customer.

Question 3

Lance Allot, vice-president of Arthur industries, a computer manufacturer in England, has been trying to figure out whether one of his branch managers. Ms. Gwen, has been achieving the company-wide return on sales target of 20 percent. Mr. Allot has just been given data from his new target costing system regarding Ms. Gwen's operations. Ms. Gwen's estimated target sales volume is 30,000computers with a target-selling price of $1000. The data also show that Ms. Gwen's unit target cost is $750per unit.


Help M. Allot determine whether Ms. Gwen's return on sales target has been met.

Has Ms. Gwen done a good or a Poor job? Explain.


1,000*30,000-X*1,000*30,000 =750*30,000 X=25%

25%>20% so that mean Ms. Gwen done a good job.

Overall target Profit is the unknown and we are specifically trying to solve for the return on sales target, ST.

The return on sales target for MS. Gwen is computed using the following formula:

Target sales - Target Profit = Target Cost

($1,000 X 30,000) - (RST X $1,000X 30,000)= ($750 X 30,000)

$30,000,000 - (ST X...
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