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Management at Fox Valley Machine Tool Co is considering the development of a new automated drill press called the Auto Drill After conferring with the design engineers the controller’s staff

Management at Fox Valley Machine Tool Co. is considering the development of a new automated drill press called the Auto Drill. After conferring with the design engineers, the controller’s staff assembled the following data about this product:

Target selling price

$7,500 per unit

Desired profit percentage

25% of total unit cost

Projected unit demand

4,500 Units

Activity-based cost rates

 

Materials handling

5% of direct materials and

 

purchased parts cost

Engineering

$300 per unit for AutoDrill

Production and assembly

$50 per machine hour

Delivery

$570 per unit for AutoDrill

Marketing

$400 per unit for AutoDrill

Per-unit data

 

Direct materials cost

$1,620

Purchased parts cost

$840

Manufacturing labor

 

Hours

6

Hourly labor rate

$14

Assembly labor

 

Hours

10

Hourly labor rate

$15

Machine hours

30

1. Compute the product’s target cost.

2. Compute the product’s projected unit cost based on the design engineers’ estimates.

3. Should management produce and market the Auto Drill? Defend your answer.

Jun 24 2020 View more View Less

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