Air Travel Inc. manufactures a wide variety of parts for commercial aircraft, including airplane engines. The component is purchased by OEM (Original Equipment Manufacturers) such as Boeing, for use in the larger and more powerful outboards. The units sell for $10,000, and sales volume averages 2,000 units per year. Recently, Air Travels major competitor lowered the price of the equivalent part of $9,500. The market was very competitive, and AirTravel realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year:

Cost and Usage for Production of 2,000 Units:

Air Travel Inc. manufactures a wide variety of parts for commercial aircraft, including airplane engines. The component is purchased by OEM (Original Equipment Manufacturers) such as Boeing, for use in the larger and more powerful outboards. The units sell for $10,000, and sales volume averages 2,000 units per year. Recently, Air Travels major competitor lowered the price of the equivalent part of $9,500. The market was very competitive, and AirTravel realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year:

Cost and Usage for Production of 2,000 Units:

Standard Cost Actual Quantity Actual Cost

Materials $5,000,000 $ 7,000,000

Direct labor 2,000,000 2,500,000

Indirect labor 3,800,000 3,500,000

Inspection (hours) 1,000 500,000

Materials handling (number of purchases) 50,000 400,000

Machine setups 3,000 2,000,000

Returns and rework (number of times) 200 100,000

Total $16,000,000

Question:

Calcuate the target cost for maintaining current marekt share and profitability.