ut. Metropolsan, Inc., sells one of its products for S40 each. Sales volume aver

Question

ut. Metropolsan, Inc., sells one of its products for S40 each. Sales volume averages 2,000 units per year. Recently, as main competitor reduced the price of its product to $28. Metropolitan expects sales tfaon about the prod- matches the competitor's price. In addition, the to $28. Metropolitan expects sales to drop dramatically unless it current profit per unit must be maintained. Information prod- uct (for production of 2,000) is as follows Actual $20,000 10,000 6,000 2,000 10,000 SQ 4,900 1,200 Materials (pounds) Labor (hours) Setups (hours) Material handling (moves) Warranties (number repaired) AQ 5,000 1,250 200 350 250 Required: a. Calculate the target cost for maintaining current market share and profitability b. Calculate the non-value-added cost per unit. c. If non-value-added costs can be reduced to zero, can the target cost be achieved?

Explanation / Answer

Solution:-

a.

b.

Materials:

$20,000 / 5,000 = $ 4 per pound

(5,000 - 4,900) * $4 = $400

Labor:

($10,000 / 1,250) = $8 per hour

(1,250 - 1,200) * $8 = 400

c.

No, if non-value-added can be reduced to zero, the cost per unit would be $14.60 ($24 - $9.40) , which is above the target cost of $12.

Please Rate or comment if you have any doubt regarding this solution.

Particulars Amount Current selling pirce $40 Less current cost ($48,000 / 2,000) 24 Current profit per unit $16 Selling price to maintain market share $28 Less: desired profit per unit 16 Target cost $12

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