Lakeside Accessories manufactures computer backpacks, messenger bags, and other items for carrying electronics, documents, and so on. In developing a new bag for the newest release of laptops, the design group has estimated the following unit costs:

Direct labor at Lakeside Accessories earns $25 per hour for sewing and $20 per hour for assembly. Overhead is estimated for new products at 40 percent of direct labor cost. Lakeside has a target operating profit of 21 percent (as a percentage of costs) on this type of product. The marketing team has estimated that a price of $125 is expected for the bag. 

Required

a. Will Lakeside Accessories achieve the target operating profit for this product?

b. The product manager, who is the company’s main advocate for this new design, tells you that he plans to have all the labor (sewing and assembly) done by the assembly labor because “it is not all that difficult.” Under the new plan for producing the bags, will Lakeside Accessories achieve the target operating profit for this bag?

Transcribed Image Text:

Fabric..... Leather... Direct labor hours - Sewing.. Direct labor hours - Assembly. $26 $7 1.4 1.0