Easton Toy Manufacturing has recently performed an activity-based costing analysis of one of its best-selling toys, the Sasha doll. The analysis shows the following estimated monthly cost per 4,000 unit production run:

Required:

a) Easton's management has a target return of 20% of monthly revenues. What total revenue amount would justify the continued production of Sasha dolls without reducing costs or reducing the 20 percent return on sales?
b) Assuming that Easton's management feels that the market will not accept any increase in the selling price of the Sasha doll. What percentage reduction in total costs would be required to achieve the target return?
c) Easton's customer-service manager is a member of the company's cross-functional team analyzing the Sasha doll cost information. If costs must be reduced to make Easton's profit goal feasible, does it make sense to recommend that all areas of the company find ways to reduce costs by reducing all resources by a stated percentage amount? Why or why not?

Question

Easton Toy Manufacturing has recently performed an activity-based costing analysis of one of its best-selling toys, the Sasha doll. The analysis shows the following estimated monthly cost per 4,000 unit production run:
 
Required:

a) Easton's management has a target return of 20% of monthly revenues. What total revenue amount would justify the continued production of Sasha dolls without reducing costs or reducing the 20 percent return on sales?
b) Assuming that Easton's management feels that the market will not accept any increase in the selling price of the Sasha doll. What percentage reduction in total costs would be required to achieve the target return?
c) Easton's customer-service manager is a member of the company's cross-functional team analyzing the Sasha doll cost information. If costs must be reduced to make Easton's profit goal feasible, does it make sense to recommend that all areas of the company find ways to reduce costs by reducing all resources by a stated percentage amount? Why or why not?

Quizplus · Accepted Answer

The Answer of Easton Toy Manufacturing has recently performed an activity-based costing analysis of one of its best-selling toys, the Sasha doll. The analysis shows the following estimated monthly cost per 4,000 unit production run:
 
Required:

a) Easton's management has a target return of 20% of monthly revenues. What total revenue amount would justify the continued production of Sasha dolls without reducing costs or reducing the 20 percent return on sales?
b) Assuming that Easton's management feels that the market will not accept any increase in the selling price of the Sasha doll. What percentage reduction in total costs would be required to achieve the target return?
c) Easton's customer-service manager is a member of the company's cross-functional team analyzing the Sasha doll cost information. If costs must be reduced to make Easton's profit goal feasible, does it make sense to recommend that all areas of the company find ways to reduce costs by reducing all resources by a stated percentage amount? Why or why not?

Easton Toy Manufacturing Has Recently Performed an Activity-Based Costing Analysis