1. Farthon Automotive Company is considering on manufacturing a new brand of automobile. Given the current product and process designs, the cost data are:

Direct materials costs (per car) P20,000

Direct labor costs (per car) 6,000

Overhead costs (per car) 8,000

The company expects the selling price to be P40,000 and has set a target profit of P10,000.

A supplier told Farthon that it could purchase a couple of similar components under a different brand name at a lower price. This would result in cost savings of P4,000 per automobile. Furthermore, the company found that it could redesign its manufacturing process to cut down on both inspection labor and worker labor, which would result in cost savings of P1,000 per automobile.

1. Calculate Farthon's target cost.
2. Calculate the total costs per auto after Farthon redesigns its processes and schedules to buy cost-saving components.

Should Farthon manufacture the auto? Calculate the expected profit after the cost savings are taken into account.