Hanjaya Industries manufactures ergonomic devices for computer users. Some of its more popular products include anti-glare filters and privacy filters (for computer monitors) and keyboard stands with wrist rests. Over the past 5 years, it experienced rapid growth, with sales of all products increasing 20% to 50% each year.

Last year, some of the primary manufacturers of computers began introducing new products with some of the ergonomic designs, such as anti-glare filters and wrist rests, already built in. As a result, sales of Hanjaya Industries’ accessory devices have declined somewhat. The company believes that the privacy filters will probably continue to show growth, but that the other products will probably continue to decline. When the next year’s budget was prepared, increases were built into research and development so that replacement products could be developed or the company could expand into some other product line. Some product lines being considered are general-purpose ergonomic devices including back supports, foot rests, and sloped writing pads.

The most recent results have shown that sales decreased more than was expected for the anti-glare filters. As a result, the company may have a shortage of funds. Top management has therefore asked that all expenses be reduced 10% to compensate for these reduced sales. Summary budget information is as follows. 

Direct materials....................................Rp240,000,000 

Direct labor................................................110,000,000

Insurance....................................................50,000,000

Depreciation..............................................90,000,000

Machine repairs.........................................30,000,000

Sales salaries..............................................50,000,000

Office salaries.............................................80,000,000

Factory salaries (indirect labor)................50,000,000

Total............................................................Rp700,000,000

Instructions

Using the information above, answer the following questions.

a. What are the implications of reducing each of the costs? For example, if the company reduces direct materials costs, it may have to do so by purchasing lower-quality materials. This may affect sales in the long run.

b. Based on your analysis in (a), what do you think is the best way to obtain the Rp70,000,000 in cost savings requested? Be specific. Are there any costs that cannot or should not be reduced? Why?