Question

UR Safe Systems installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these characteristics:

Design Specifications	ICU 100			ICU 900			Cost Data
Video cameras		1			4		$	114	/ea
Video monitors		1			1		$	26	/ea
Motion detectors		6			2		$	18	/ea
Floodlights		8			3		$	8	/ea
Alarms		1			7		$	13	/ea
Wiring		610	ft.		1,010	ft.	$	0.1	/ft.
Installation		13	hr		13	hr	$	15	/hr

The ICU 100 sells for $900 installed, and the ICU 900 sells for $1,610 installed.

Required:

1. What are the current profit margin percentages on both systems?

2. UR Safe’s management believes that it must drop the price on the ICU 100 to $840 and on the ICU 900 to $1,480 to remain competitive in the market. Recalculate profit margin percentages for both products at these price levels and then compute the target cost needed for each product to maintain the current profit margin percentages.

(For all requirements, round your percentage answers to 2 decimal places and other answers to the nearest whole dollar amount.)

Answer 1

Meaning of Target Cost:

Target cost of the Product is the expected selling price of the product minus the desired profit.Target cost is the measure of

how low costs need to be to make certain profit.

Solution to the question as per following images:

Requirement 1 U R SAFE SYSTEMS STATEMENT SHOWING CALCULATION OF CURRENT PROFIT MARGIN Amount in $ ICU 900 Particulars ICU 100 Cost per unit ($) No of Units Required per Installation ICU 100 ICU 900 A)Selling Price 900.00 1610.00 114/ea 26/ea 18/ea Cost of Sales: Video Cameras Cost Video Monitors Cost Motion Detectors cost Floodlights cost Alarms cost Wiring cost Installation cost B)Total Cost of Sales 8/ea 13/ea 0.1/ft 114.00 26.00 108.00 64.00 13.00 61.00 195.00 581.00 456.00 26.00 36.00 24.00 91.00 101.00 195.00 929.00 610 ft 13hr 1010 ft 13 hr 15/hr C)Profit Margin (A-B) 319.00 681.00 35.44% 42.30% D) Profit Margin Percentage (C/AX 100) Requirement 2 UR SAFE SYSTEMS STATEMENT SHOWING CALCULATION OF PROFIT MARGIN AS PER REVISED RATES Amount in $ Particulars Cost per unit No of Units Required ICU 100 ICU 900 ($) per Installation ICU 100 ICU 900 A)Selling Price 840.00 1480.00 Cost of Sales: Video Cameras Cost Video Monitors Cost Motion Detectors cost Floodlights cost Alarms cost Wiring cost Installation cost B)Total Cost of Sales 114/ea 26/ea 18/ea 8/ea 13/ea 0.1/ft 15/hr 114.00 26.00 108.00 64.00 13.00 61.00 195.00 581.00 456.00 26.00 36.00 24.00 91.00 101.00 195.00 929.00 610 ft 13 hr 1010 ft 13 hr C) Profit Margin (A-B) 259.00 551.00 30.83% 37.23% D) Profit Margin Percentage (C/Ax 100) Ics Scanned with CamScanner

STATEMENT SHOWING CALCULATION OF TARGET COST FOR EACH PRODUCT Target Cost Formula Expected Selling Price - Desired Profit Particulars A) Expected Selling Price B) Desired Profit Margin Percentage C) Desired Profit ( AXB) D) Target Cost (A-C) ICU 100 840.00 35.44% 297.70 542.30 Amount in $ ICU 900 1480.00 42.30% 626.04 853.96 Cs Scanned with CamScanner