Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $250 and has a product cost of $200, as follows: Direct materials $140
Direct labor 40
Factory overhead 20
Total $200
It is estimated that the competitive selling price for color laser printers of this type will drop to $240 next year. Laser Cast has established a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost-reduction ideas: Purchase a plastic printer cover with snap-on assembly, rather than with screws. This will reduce the amount of direct labor by 9 minutes per unit. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $5 per unit. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 40% of the factory overhead are related to running injection molding machines. The direct labor rate is $17 per hour.
a. Determine the target cost for Model J20 assuming that the historical markup on product cost and selling price is maintained.
b. Determine the required cost reduction.
c. Evaluate the three engineering improvements together to determine if the required cost reduction (drift) can be achieved.