Problem $5-19$B Target pricing and target costing with ABC

Klein Corporation manufactures two models of watches. Model Wonder displays cartoon characters and has simple features designed for

kids. Model Marvel has sophisticated features such as dual time zones and an attached calculator. Klein's product design team has worked

with a cost accountant to prepare a budget for the two products for the next fiscal year as follows.

Wonder watches have $35$ parts, and Marvel watches have $65$ parts. The budget calls for producing $20,000$ units of Wonder and

$8,000$ units of Marvel. Klein tests $5$ percent of its products for quality assurance. It sells all its products at market prices.

Required

a$.$ Compute the cost per unit for each product.

b$.$ The current market price for products comparable to Wonder is $$28$ and for products comparable to Marvel is $$85.$ What will Klein's

profit or loss for the next year be$?$

c$.$ Klein likes to have a $25$ percent profit margin based on the current market price for each product. What is the target cost for each

product? What is the total target profit?

d$.$ The president of Klein has asked the design team to refine the production design to bring down the product cost. After a series of

redesigns, the team recommends a new process that requires purchasing a new machine that costs $$200,000$ and has five years of useful

life and no salvage value. With the new process and the new machine, Klein can decrease the number of machine setups to four for each

product and cut the cost of materials handling by $60$ percent. The machine hours used will be $4,500$ for Wonder and $6,500$ for Marvel.

Does this new process enable Klein to achieve its target costs?