Excel Project $4$

Course Objectives $1\mathrm{.}4\mathrm{.}2,2\mathrm{.}3,4\mathrm{.}2$

Donner, Inc. produces a number of components that are used in sleighs. Sam Claus, head of the

company's market research department, has identified the need for a new component that will

most likely sell for $$92.$ Projected volume levels are anticipated to reach $35,000$ units in the first

year, as several firmly entrenched competitors will be offering the same product soon.

Here are the following cost estimates for the new component:

Direct materials $22$

Direct labor $40$

Manufacturing overhead $18$

Selling and administrative expenses $6$

Donner currently uses cost$-$plus pricing and adds a $25\%$ markup on total production cost to arrive

at what is normally a competitive selling price.

Required:

$1.$ Describe the four major influences on pricing decisions.

$2.$ What is the anticipated selling price of the new component if Donner uses its current

pricing policy? What difficulties might the company face in the marketplace?

$3.$ Assume that Donner decides to switch to target costing. What price would the company

charge for the new component?

$4.$ With the switch to target costing, what would Donner have to do to the component's

manufacturing cost to achieve the normal profit margin on sales? Be specific and show

calculations $($show the new product cost and then the reduction required$).$

$5.$ What is value engineering, and how can Donner use it to meet cost requirements $($list at

least three ways$)?$