a) Sealy Ltd manufactures memory foam mattresses in its Liverpool factory in New South Wales. Earlier this year, a new competitor entered the market offering similar memory foam mattresses at a price 15% below Sealy ltd’s current market selling price of $2,000. Head office categorises Sealy ltd’s Liverpool operations as a profit centre and requires memory foam mattresses to earn a profit of $500 per unit. This represents a profit margin of 25% on memory foam mattress’s current market price of $2,000.

1. What target cost would Sealy ltd need to set for the memory foam mattresses to remain competitive (to maintain its current profit position).

2. Calculate the $500 profit margin as a percentage of the selling price.

3. Explain how Sealy ltd could apply the principles of life cycle management to achieve this target cost.

b. Adam Smith has been appointed as the CEO of Sealy Ltd. Adam has hired you as a consultant provide an analysis on cost management practices. Prepare a report outlining differences between Kaizen costing, target costing and life cycle costing as traditional cost management policies.

Answer rating: 100% (QA)

Qa Answer 1 Sealy ltd would need to set a target cost of 1700 for the memory foam mattresses to remain competitive and maintain its current profit pos... View the full answer