Big Cheese Chairs (BCC) manufactures and sells executive leather chairs. They are considering a new design...

 

Transcribed Image Text:

Big Cheese Chairs (BCC) manufactures and sells executive leather chairs. They are considering a new design of massaging chair to launch into the competitive market in which they operate. They have carried out an investigation in the market and using a target costing system have targeted a competitive selling price of $120 for the chair. BCC wants a margin on selling price of 20%. The frame and massage mechanism will be bought in for $51 per chair and BCC will upholster it in leather and assemble it ready for despatch. Leather costs $10 per metre and two metres are needed for a complete chair. BCC estimates that to produce a chair will take two hours. The cost of labour is $15 per hour. Required: (a) Calculate the cost to produce a chair and identify the cost gap. (6 marks) (b) Assuming that a cost gap for the chair exists suggest four ways in which it could be closed. (6 marks) Big Cheese Chairs (BCC) manufactures and sells executive leather chairs. They are considering a new design of massaging chair to launch into the competitive market in which they operate. They have carried out an investigation in the market and using a target costing system have targeted a competitive selling price of $120 for the chair. BCC wants a margin on selling price of 20%. The frame and massage mechanism will be bought in for $51 per chair and BCC will upholster it in leather and assemble it ready for despatch. Leather costs $10 per metre and two metres are needed for a complete chair. BCC estimates that to produce a chair will take two hours. The cost of labour is $15 per hour. Required: (a) Calculate the cost to produce a chair and identify the cost gap. (6 marks) (b) Assuming that a cost gap for the chair exists suggest four ways in which it could be closed. (6 marks)

Answer rating: 100% (QA)

Step 13 a On the basis of cost data provided cost to produce a chair is determined as below Cost per ... View the full answer