Deluxe Doll Manufacturing Produces Several Different Types of Dolls

question 25

Essay

Deluxe Doll Manufacturing produces several different types of dolls. Product demand escalates during the holiday season in December. In the past, the company filled customer orders by anticipating demand increases and then manufacturing inventories in advance.
Recently, competition from other toymakers has escalated. Deluxe needs to reduce prices and, therefore, cut costs. The current cost for Deluxe's best seller, Bouncy Baby Doll, is $12. To be competitive, the marketing manager believes that the price should be 10% lower than the current price. The company currently achieves a pre-tax return of 10% on sales of the dolls, and the top managers want to continue this rate of return.
Following are the per-unit costs for baby dolls, based on production of 500,000 per year:
Direct materials (variable)$ 4.50
Direct labour (variable)1.00
Machining costs (fixed amortization and maintenance)5.00
Inspection costs (variable)0.50
Marketing costs (fixed)0.25
Administrative costs (fixed)0.75
Total cost $12.00
a)Calculate the price recommended by the marketing department.
b)Given the price you calculated in Part (a), calculate the new contribution margin and the target cost.
c)Calculate the target cost reduction for each cost category, assuming proportional cost reduction across categories.

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Definitions:

Conservative Opposition

A term used to describe resistance or opposition from conservative groups or political parties against progressive or liberal policies and reforms.

Radical Opposition

Refers to the groups or individuals who adopt extreme measures or views to oppose or reform a prevailing system or government.

First New Deal

A series of programs and policies introduced by President Franklin D. Roosevelt in the 1930s to counter the effects of the Great Depression in the United States.

Second New Deal

A phase of the New Deal programs enacted by President Franklin D. Roosevelt in 1935 focusing on social justice and the creation of a social safety net.