3. A Purchaser seeks to purchase a designed component that is a part of a final end product. The final selling price of the product has been determined through discussion with marketing and this has been disaggregated to the component level. As such, both parties have agreed to target price of $61 for the component for the first year where a supplier profit is based on 30% return on investment negotiated in agreement.

During the first year the following events affected the selling price at the start of year two.

1. Overall material cost rise by 3% (raw material cost increased)
2. A joint value analysis team identifies a substitute material that reduces material cost by $2 per unit
3. Labor rate increased by 3%
4. The supplier meets the agreed productivity improvement target for reduced scrap by 8% (hint: current scrap rate is 2%).

By focusing on joint cost reduction, a supplier benefited from improvement commitment is expressed through the 50/50 improvement gain share.

Using a Key Data for the Cost-Based Pricing Table and information provided above, please compute the year 2 price for a purchasing company?

Notice: Show your work

Using a Key Data for the Cost-Based Pricing Table and information provided above, please compute the year 2 price for a purchasing company? Notice: Show your work First-year target price = $61.05 . Negotiated/Analyzed Cost Structure Material Labor rate Burden rate Scrap rate SG&A expense rate Effective volume range Projected product life ROI agreement $20/unit $8.50/unit 200% of direct labor 10% 10% of mfg cost 125,000 units/year + 10% 2 years 30% . Supplier Investment Year 1 $3,000,000 Year 2 $2,000,000 Material Cost Savings Sharing (50/50) Scrap rate Target is 2% a. $56.27 b. $63.18 c. $55.14 d. $57.271 Using a Key Data for the Cost-Based Pricing Table and information provided above, please compute the year 2 price for a purchasing company? Notice: Show your work First-year target price = $61.05 . Negotiated/Analyzed Cost Structure Material Labor rate Burden rate Scrap rate SG&A expense rate Effective volume range Projected product life ROI agreement $20/unit $8.50/unit 200% of direct labor 10% 10% of mfg cost 125,000 units/year + 10% 2 years 30% . Supplier Investment Year 1 $3,000,000 Year 2 $2,000,000 Material Cost Savings Sharing (50/50) Scrap rate Target is 2% a. $56.27 b. $63.18 c. $55.14 d. $57.271