Work
6AC004 Week 4 Seminar Activities .
Answers to these activities should be prepared for the Friday session
Activity 1 – Target Costing
A company producing vacuum cleaners has conducted market research and has concluded that it can sell 150,000 units( per year) with certain features at a price of
£180 per cleaner. It is estimated that this model will have a 5 year life cycle, after which it will become obsolete. It will require an additional investment of £2,750,000 in equipment which will have a nil residual value after 5 years. The companies cost of capital is 10%( the five year annuity discount factor for this is 3.791) . The company has set a target NPV for the scheme of +£10,000,000.
Required: Calculate the target annual operating costs that would be allowed to achieve the targeted NPV.
Activity 2 Target Costing
A company is planning to replace its current production process with a new one, and has produced the following estimates:
Selling price per unit
Variable cost per unit
Fixed annual operating costs Sales volume
Current system
£41
£26
£485,000
New system
£35
£8
To be determined
40,000 per year
90,000 per year
The company is aiming to achieve five times its current annual operating profit with the new process. What is the target fixed cost for the new process?
Activity 3. Standard Costing v Target Costing
Compare and contrast Standard Costing and Target Costing as techniques for controlling and management costs.
Activity 4 Cost Management- Target Costing and Life Cycle Costing
X limited has developed a new type of television which is the first of its type to be introduced to the market.
Traditionally is has priced its televisions on the basis of standard manufacturing costs plus a profit margin.
Required:
1) Evaluate how life cycle costing and target costing could be applied to this television 2) Evaluate the market based pricing strategies that should be considered for the launch of this product.
3)
Answers to these activities should be prepared for the Friday session
Activity 1 – Target Costing
A company producing vacuum cleaners has conducted market research and has concluded that it can sell 150,000 units( per year) with certain features at a price of
£180 per cleaner. It is estimated that this model will have a 5 year life cycle, after which it will become obsolete. It will require an additional investment of £2,750,000 in equipment which will have a nil residual value after 5 years. The companies cost of capital is 10%( the five year annuity discount factor for this is 3.791) . The company has set a target NPV for the scheme of +£10,000,000.
Required: Calculate the target annual operating costs that would be allowed to achieve the targeted NPV.
Activity 2 Target Costing
A company is planning to replace its current production process with a new one, and has produced the following estimates:
Selling price per unit
Variable cost per unit
Fixed annual operating costs Sales volume
Current system
£41
£26
£485,000
New system
£35
£8
To be determined
40,000 per year
90,000 per year
The company is aiming to achieve five times its current annual operating profit with the new process. What is the target fixed cost for the new process?
Activity 3. Standard Costing v Target Costing
Compare and contrast Standard Costing and Target Costing as techniques for controlling and management costs.
Activity 4 Cost Management- Target Costing and Life Cycle Costing
X limited has developed a new type of television which is the first of its type to be introduced to the market.
Traditionally is has priced its televisions on the basis of standard manufacturing costs plus a profit margin.
Required:
1) Evaluate how life cycle costing and target costing could be applied to this television 2) Evaluate the market based pricing strategies that should be considered for the launch of this product.
3)