Target Costing
E 12. Suppose that Ikea, the Swedish retailer, is developing a new chair targeted to sell for less than $100 and that it is considering the two production alternatives that follow. Rank the alternatives, assuming that the company’s minimum desired profit is 30 percent over total production costs.
|
Alternative A |
Alternative B |
|
|
Direct material costs |
$35 |
$20 |
|
Direct labor cost |
1 hour at $12 per hour |
2 hours at $8 per hour |
|
Overhead costs |
200 percent of direct labor costs |
$2 per dollar of direct materials |