Question - Household Manufacturing Inc. sells its product for $80 each.
Sales volume averages 10,000 units per year.
Recently, its main competitor reduced the price of its product to $68.
Maximum expects sales to drop dramatically unless it matches the competitor's price.
In addition, the current profit per unit must be maintained.
Information about the product (for production of 10,000) is as follows.
Standard Quantity Actual Quantity Actual Cost
Materials (pounds) 2,400 2,500 $50,000
Labor (hours) 600 750 $22,500
Setups (hours) 0 150 $4,500
Material handling (moves) 0 500 $4,000
Warranties (number repaired) 0 300 $21,000
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?