Question

Strategic Initiatives and CSR Get Hitched Inc. is a production company that is in the process of testing a strategic initiative aimed at increasing gross profit. The company's current sales revenue is $1,500,000. Currently, the company's gross profit is 35% of sales, but the company's target gross profit percentage is 40%. The company's current monthly cost of production is $975,000. Of this cost, 50% is for labor, 20% is for materials, and 30% is for overhead. The strategic initiative being tested at Get Hitched is a redesign of its production process that splits the process into two sequential procedures. The make up of the costs of production for Procedure 1 is currently 50% direct labor, 45% direct materials, and 5% overhead. The makeup of the costs of production for Procedure 2 is currently 50% direct labor, 20% direct materials, and 30% overhead. Company management estimates that Procedure 1 costs twice as much as Procedure 2. 1. Determine what the cost of labor, materials, and overhead for both Procedures 1 and 2 would need to be for the company to meet its target gross profit at the current level of sales. Cost makeup of Procedure 1: Direct Labor Direct Materials Overhead Total Cost makeup of Procedure 2: Direct Labor Direct Materials Overhead Total 2. The company's actual direct materials cost is $279,000 for Procedure 1. Determine the actual cost of direct labor, direct materials, and overhead for each procedure, and the total cost of production for each procedure.
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Answer 1

solo - Given () sales = $15,00,000 Gross profit = 35% cost of production = $ 9,75,000 Target profit margin = 401. of corrent level of sales Hence, targeted profit margin = 40.1 of $ 15,00,000 sales -4097 X 15,00,000 100 = $6,00,000 cost of production - sales - gross profit = $ 15,00,000 – $6,00,000 cost of production $9,00,000 Panticulars. ProcedvieTCA) Amount(1) Procedwell (1) Amount (3) Direct labour SQ X9,00,000 4.50,000 x 9,00000 4,95,000 Direct material x 9,00000 405,000 1 X 9,00,000 2,25,000 overhead O x 9,00,000 45.000 * 9,00,000 1,80,000 9,00,000 Total 100 9,00,000 100

12) Gøven total actual derect matterfal cost - $ 2,79,000 As per the cost break up Procedure, donect materic cost accounts for us% then total Production cost anounts to $ 2,79,000 40-4. (6791058 P10f 16 ) = $6,975 Hence total Production cost - $ 6,975 Direct labour = 50% of $ 6,975 - 1x 6,975 100 = 3,487.5 overhead =54. of $6,975 = 51. x6,975 100 - 348.75

Porticulars / Portion (%) Drect labow 50% 50%. Direct material 45% Amount ($) 1$3,487.5 $ 2,79,000 overhead I 5.. $348.75 Total 1004 $ 2,82,836.25 (3) Sales = $15,00.000 Gross Profit - 404% of $15,00,000 -$6,00,000 Cost of production = sales - gross profit $15,00,000 - $6,00,000 © $ 9,00,000

over head under procedimore - 304.0f $6,00.000 = $1,80,000 Given 6ol of overhead ander procedure attributes to indirect materials Hence, anderect materials -60% of $ 1,80,000 - legenda = 108,000 $ & overhead exclusive of indirect material = $, 1,80,000 - $1,08,000 = $ 72,000 Given, implementation of CSR yesults ºn avoidance Of undorect materials