Fisher Industries, which makes pumps, is planning for a new product. Current sales projections call for 300,000 units at a sales price of $210 per pump. Management wants to earn a profit margin (measured as return on sales) of 5% on such products.
The following is the product€™s current cost structure.

Required:
a. Compute the product€™s allowable cost and the cost reduction needed relative to current cost.
b. Suppose we find that we could get a 5% reduction in variable manufacturing costs and a 10% reduction in SG&A costs. Further reductions are thought to be infeasible. What actions do yourecommend?

Transcribed Image Text:

Unit Cost 880 ltem Materials and components Direct labor Manufacturing overhead (fixed) SG&A costs Total 40 15 $210