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Strategic initiatives and CSR

Blue Skies Inc. is a retail gardening company that is piloting a new strategic initiative aimed at increasing gross profit. Currently, the company$$s gross profit is $23\%$ of sales, and its target gross profit percentage is $28\%.$ The company$$s current monthly sales revenue is $$660,000.$

The new initiative being piloted is to produce goods in$-$house instead of buying them from wholesale suppliers. Its in$-$house production process has two procedures. The makeup of the costs of production for Procedure $1$ is $40\%$ direct labor, $45\%$ direct materials, and $15\%$ overhead. The makeup of the costs of production for Procedure $2$ is $50\%$ direct labor, $25\%$ direct materials, and $25\%$ overhead. Assume that Procedure $1$ costs twice as much as Procedure $2.$Strategic initiatives and CSR

production for Procedure $2$ is $50\%$ direct labor, $25\%$ direct materials, and $25\%$ overhead. Assume that Procedure $1$ costs twice as much as Procedure $2.$

Required:

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.

The company's actual labor cost is $$132,000$ 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.

Cost makeup of Procedure $1$:

Direct Labor &

Direct Materials

Cost makeup of Procedure $2$:

Direct Labor :

Direct Materials

Overhead

Total

Maximum new cost of $P1$ overhead materials: