Case Study Question:

Myra Ltd produces mobile phones from a variety of components sourced from suppliers. They are designing a new mobile that they believe will be able to sell the sets at a slight premium to their standard model. They believe that most consumers would be willing to pay is 235.00 per set. The Board agreed that an acceptable margin after all production costs should be 25%.

Cost information for the new sets is as follows:

• Component 1 circuit boards. These are bought in and cost 56 each. They are bought in batches of 5,000 and delivery costs are 10,000 per batch.
• Component 2 These are bought in and cost 24.00 each
• Other materials cost 56 per set.
• Assembly labour (skilled) is paid at 13.50 per hour. Each set takes 25 minutes to assemble and there is an estimated 10% of hours paid in idle time.
• Production overheads are absorbed into production costs on an assembly hour basis. Average production overheads 3,500,000 per month and around 500,000 assembly hours are worked per year in Myra Ltd.

Required: Calculate the target cost per unit for the phone handset.