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 $1,200,000. 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 $780,000. Of this cost, 40% is for labor, 20% is for materials, and 40% 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 55% direct labor, 25% direct materials, and 20% 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 $223,200 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.

Cost makeup of Procedure 1:

Direct Labor	$
Direct Materials
Overhead
Total	$

Cost makeup of Procedure 2:

Direct Labor	$
Direct Materials
Overhead
Total	$

3. The company is planning a CSR initiative to reuse some of the indirect materials used in production during Procedure 2. These indirect materials normally make up 70% of the overhead cost for Procedure 2, but the CSR initiative would reduce the usage of indirect materials. Determine what the maximum new cost of these indirect materials could be for Procedure 2 if this CSR initiative is expected to enable the company to meet its target gross profit percentage (holding all other costs constant).

Maximum new cost of P2 overhead materials:
$_______________

Feedback

Strategic initiatives are action plans that management implements to achieve the strategic objectives. In other words, strategic objectives are different goals a company wants to achieve, and strategic initiatives are the plans a company makes to achieve those goals. Companies can use the balanced scorecard to address CSR objectives in a variety of ways. One way is to include CSR objectives and activities in a separate CSR performance perspective.

Answer 1

pac Answer": Total cost = current sales level - Target 9/p. = $ 1,200,000 - (1,200 3000 x 40•) = $1,200,000 -( 480000) = $720,000 Total cost = $720,000 (213) = $480000 Total cost = $720,000x (113) = 240000 ☺ cost makeup d procedure D: Direct labor = 480000 x 50%. = 240000 Direct materials: 480000 x 454. = 216,000 Overhead - 480000 x 54, 524000 3) 240000 +916,000 +241000 - 480000

t Direct labor | Direct materials overhead Total $ 240000 $216.000 $24,000 $ 480000 cost makeup d procedure (°) : Direct labor = 240000 x 55% = 132,000 Direct materials = 240000 x 25.4. = 60,000 Orca head = 240000 x 20y = 48,000 => 132,000-160,000 748,000 - 240000 Direct tabox $132.000 Direct materials G0,000 overhead $ 481000 $240,000 Total cost make up of procedure 6 - Divert labor =(223,200/454X 509.) = 248,000 Direct materials - 223,200 Over head = (aa3,200 jus X5%) = 2 4800 3 ) 248,000 + 223,200 +24800 = 496,000

$248.000 $ 223.000 Direct laboy Direct materials oveikeod. Total $94800 $496,000 cost mastup do proceclere @: Direct, Daboy = 248,000 X 55:), =ļ364 00: Direct materials - Qu8,000x 85%. = 62000 overhead = 248,000 X30% - 49600 =>136400 +62000749600 - 248,000 $13.6 400 Direct labor. Direit materials - Overhead Tolal G2.000 $49600 248.000 ② faming an equation, Total cost for both procedure. +gross profit= current sales. Assuming Oh cost for proudure d as x. 496,000+ 136 400 + 62.000 + x +480000 = 1,200,000 X = 1,200,000 – 496,000 –136,400 -- 62000 – 480000

X = $25,600 1 ..mozimam new cost of Iz overhead warteriedy - $25,600