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Sylvan Creations designs, manufactures, and sells modern wood sculptures. Sandra Johnson is an artist for the company. Johnson has spent much of the past month working on the design of an intricate abstract piece. Jim Chase, product development manager, likes the design. However, he wants to make sure that the sculpture can be priced competitively. Ellen Cooper, Sylvan’s cost accountant, presents Chase with the following cost data for the expected production of 75 sculptures:

Design cost $10,000
Direct materials 80,000
Direct manufacturing labor 27,500
Variable manufacturing overhead 10,000
Fixed manufacturing overhead 42,500
Fixed marketing costs 17,500

1. Chase thinks that Sylvan Creations can successfully market each piece for $3,000. To earn the required return on capital, the company's target operating income per unit is 20% of target price. Calculate the target full cost per unit of producing the 75 sculptures. Does the cost estimate Cooper developed meet Sylvan's requirements? Is value engineering needed? What is the total target operating income for the 75 sculptures?

Sagot :

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