Corporate social responsibility

Quicksaw Inc. is a production company that is in the process of testing a strategic initiative aimed at increasing gross profit. The company$$s current sales revenue is $$1\mathrm{.}5$ million. Currently, the company$$s gross profit is $35\%$ of sales, but the company$$s target gross profit percentage is $45\%.$ The company$$s current monthly cost of production is $$975,000.$ Of this cost, $60\%$ is for labor, $30\%$ is for materials, and $10\%$ is for overhead.

The strategic initiative being tested at Quicksaw is a redesign of its production process that splits it into two sequential procedures. The makeup of the costs of production for Procedure $1$ is currently $50\%$ direct labor, $45\%$ direct materials, and $5\%$ overhead. The makeup of the costs of production for Procedure $2$ is currently $40\%$ direct labor, $25\%$ direct materials, and $35\%$ overhead. Company management estimates that Procedure $1$ costs twice as much as Procedure $2.$

Required:

$1.$ Determine what the cost of labor, materials, and overhead for both Procedures $1$ and $2$ would need to be for the company to meet its target gross profit at the current level of sales.

Line Item Description Procedure $1$ Procedure $2$

Labor $fill in the blank $1$ $fill in the blank $2$

Materials fill in the blank $3$ fill in the blank $4$

Overhead fill in the blank $5$ fill in the blank $6$

Total $fill in the blank $7$ $fill in the blank $8$

$2.$ The company$$s actual direct materials cost is $$270,000$ for Procedure $1.$ Determine the actual cost of direct labor, direct materials, and overhead for each procedure, and the total cost of production for each procedure.

Line Item Description Procedure $1$ Procedure $2$

Labor $fill in the blank $9$ $fill in the blank $10$

Materials fill in the blank $11$ fill in the blank $12$

Overhead fill in the blank $13$ fill in the blank $14$

Total $fill in the blank $15$ $fill in the blank $16$

$3.$ The company is planning a CSR initiative to reuse some of the indirect materials used in production during Procedure $2.$ These indirect materials normally make up $75\%$ of the overhead cost for Procedure $2,$ but the CSR initiative would reduce the usage of indirect materials. Determine what the maximum new cost of these indirect materials could be for Procedure $2$ if this CSR initiative is expected to enable the company to meet its target gross profit percentage $($holding all other costs constant$).$

Maximum new cost of P$2$ overhead materials fill in the blank $1$ of $1$$