Question

Quality Chairs Inc. (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for $650 whereas the competition's comparable chair was selling for $570. Winters determined that a price drop to $570 would be necessary to regain market share and reach a targeted annual sales level of 10,000 chairs.

Cost data based on sales of 10,000 chairs:

	Budgeted Quantity			Actual Quantity			Actual Cost
Direct materials (board feet)		88,500			80,000		$	1,252,500
Direct labor (hours)		71,600			74,025			875,500
Machine hours (hours)		11,650			11,500			250,500
Finishing and packing (hours)		6,750			6,650			125,500

If the profit per unit is maintained, the target cost per unit is:

Multiple Choice

• $81.

• $171.

• $181.

• $276.

• $226.

Answer 1

Cost per unit = ($1,252,500 + $875,500 + $250,500 + $125,500) / 10,000 = $250.40

Profit per unit = $650 - $250.40 = $399.60

New selling price = $570

New cost per unit = New selling price - Profit per unit

= $570 - $399.6

= $170.4

$171 2nd option