Question
Roseville, Ltd., sells one of its products for $500 each. Sales volume averages 1,000 units per year. Recently, its main competitor priced their competing product at 10 percent below Roseville's price. Roseville expects its sales to drop dramatically unless it matches the competitor's price. Despite the anticipated price reduction, Roseville would like to maintain its current profit per unit.
Information regarding the inputs required to produce 1,000 units of product is as follows:
|
SQ
|
AQ
|
Actual Cost
|
|
Materials (kilograms)
|
7,800
|
8,000
|
$160,000
|
|
Labour (hours)
|
600
|
720
|
108,000
|
|
Setups (hours)
|
-0-
|
600
|
34,000
|
|
Material handling (moves)
|
-0-
|
300
|
58,000
|
|
Warranties (number repaired)
|
-0-
|
200
|
60,000
|
|
|
|
|
|
|
(A) Calculate the target cost for maintaining current market share and profitability.
(B) Calculate the nonvalue-added cost per unit.
(C) If nonvalue-added costs can be reduced to zero, can the target cost be achieved? Explain your answer.