Question

MaxiDrive manufactures a wide variety of parts for recreational boating, including a gear and driveshaft part for high-powered outboard boat engines. Original equipment manufacturers such as Mercury and Honda purchase the components for use in large, powerful outboards. The part sells for $615, and sales volume averages 25,500 units per year. Recently, MaxiDrive's major competitor reduced the price of its equivalent unit to $552. The market is very competitive, and MaxiDrive realizes it must meet the new price or lose significant market share. Management has begun paying closer attention to costs and has reconfirmed the current existing standard costs. The controller then assembled the following cost and usage data for the most recent year for MaxiDrive's production of 25,500 units: eBook Budgeted Quantity Budgeted Actual Actual Quantity Cost Cost $ 6,550,000 2,515,000 2,520,000 $ 7,050,000 2,650,000 2,425,000 355,000 510,000 750,000 Direct materials Direct labor Indirect labor Inspection (hours and cost) Materials handling (number of purchases and cost) Machine setups (number and cost) Returns and rework (number of times and cost) 940 310,000 525,000 775,000 1,050 3,500 1,550 3,650 1,450 310 85,000 510 135,000 $13,280,000 $13,875,000 Required: 1. Calculate the target cost for maintaining current market share and profitability. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Target cost

Answer 1

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Anwes Cost per unit = $13875000 25500 una = $544. 117647058 Cussent profit = selling price unit cast = 615- 544.11765 = $ 70.882 Target cost = competitors selling Price - Cussent Profit = $552 - 70.882 2 $481.1176 = $481-12

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