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    Problem 12.26 AML Week 5

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    aisyahnadiatul
    Carsen Hepworth, a consultant hired by Joseph Hansen, president of Electronica Inc., identified various production activities and costs through an activity-based management analysis. The current $27 selling price of integrated circuit boards was only generating a $3 per-unit profit, half the usual amount, and foreign competitors were lowering prices further. Carsen determined some costs were non-value added and preliminary analysis showed per-unit costs could be reduced by at least $10.50. This would allow lowering the price to $18 and increasing sales 50% as desired.

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    Problem 12.26 AML Week 5

    Uploaded by

    aisyahnadiatul
    79 views2 pages
    Carsen Hepworth, a consultant hired by Joseph Hansen, president of Electronica Inc., identified various production activities and costs through an activity-based management analysis. The current $27 selling price of integrated circuit boards was only generating a $3 per-unit profit, half the usual amount, and foreign competitors were lowering prices further. Carsen determined some costs were non-value added and preliminary analysis showed per-unit costs could be reduced by at least $10.50. This would allow lowering the price to $18 and increasing sales 50% as desired.

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    AML tugas mingguan

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    Carsen Hepworth, a consultant hired by Joseph Hansen, president of Electronica Inc., identified various production activities and costs through an activity-based management analysis. The current $27 selling price of integrated circuit boards was only generating a $3 per-unit profit, half the usual amount, and foreign competitors were lowering prices further. Carsen determined some costs were non-value added and preliminary analysis showed per-unit costs could be reduced by at least $10.50. This would allow lowering the price to $18 and increasing sales 50% as desired.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    79 views2 pages

    Problem 12.26 AML Week 5

    Uploaded by

    aisyahnadiatul
    Carsen Hepworth, a consultant hired by Joseph Hansen, president of Electronica Inc., identified various production activities and costs through an activity-based management analysis. The current $27 selling price of integrated circuit boards was only generating a $3 per-unit profit, half the usual amount, and foreign competitors were lowering prices further. Carsen determined some costs were non-value added and preliminary analysis showed per-unit costs could be reduced by at least $10.50. This would allow lowering the price to $18 and increasing sales 50% as desired.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Problem 12.

    26 – Activity-Based Management, Non-Value-Added Costs, Target Costs, Kaizen Costing

    Joseph Hansen, president of Electronica, Inc., was concerned about the end-of-the-year marketing
    report that he had just received. According to Kylee Hepworth, marketing manager, a price  decrease for
    the coming year was again needed to maintain the company's annual sales volume of integrated circuit
    boards (CBs). This would make a bad situation worse. The current selling price of $27 per unit was
    producing a $3-per-unit profit—half the customary $6-per-unit profit. Foreign competitors keep
    reducing their prices. To match the latest reduction would reduce the price from $27 to $21. This would
    put the price below the cost to produce and sell it. How could the foreign firms sell for such a low price?
    Determined to find out if there were problems with the company's operations, Joseph decided to hire
    Carsen Hepworth, a well-known consultant and brother of Kylee, who specializes in methods of
    continuous improvement. Carsen indicated that he felt that an activity-based management system
    needed to be implemented. After three weeks, Carsen had identified the following activities and costs:

    Carsen indicated that some preliminary activity analysis shows that per-unit costs can be reduced by at
    least $10.50. Since Kylee had indicated that the market share (sales volume) for the boards could be
    increased by 50 percent if the price could be reduced to $18, Joseph became quite excited.

    Required:
    1. What is activity-based management? What connection does it have to continuous
    improvement?
    2. Identify as many non-value-added costs as possible. Compute the cost savings per unit that
    would be realized if these costs were eliminated. Was Carsen correct in his preliminary cost
    reduction assessment? Discuss actions that the company can take to reduce or eliminate the
    non-value-added activities.

    Answer
    Check Figures: Total = $1,278,000

    3. Compute the target cost required to maintain current market share, while earning a profit of $6
    per unit. Now, compute the target cost required to expand sales by 50 percent. How much cost
    reduction would be required to achieve each target?

    Answer
    Check Figures: Cost reduction to maintain = $9, Cost reduction to expand = $12

    4. Assume that Carsen suggested that kaizen costing be used to help reduce costs. The first
    suggested kaizen initiative is described by the following: switching to automated insertion would
    save $90,000 of engineering support and $135,000 of direct labor. Now, what is the total
    potential cost reduction per unit available? With these additional reductions, can Electronica
    achieve the target cost to maintain current sales? To increase it by 50 percent? What form of
    activity analysis is this kaizen initiative: reduction, sharing, elimination, or selection?

    Answer
    Check Figures: Unit savings = $12.53

    5. Calculate income based on current sales, prices, and costs. Now, calculate the income using a
    $21 price and an $18 price, assuming that the maximum cost reduction possible is achieved
    (including Requirement 4's kaizen reduction). What price should be selected?

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