Question
FoxTrot manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by OEM (original equipment manufacturers) such as Mercury
FoxTrot manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by OEM (original equipment manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $740 and sales volume averages 52,000 units per year. Recently, FoxTrot's major competitor lowered the price of the equivalent part to $679. The market was very competitive, and FoxTrot 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 52,000 Units:
Budgeted Cost Quantity Actual Cost
Materials $9,980,000 $10,125,000
Direct Labor 3,996,000 3,895,000
Indirect Labor 5,600,000 5.555,000
Inspection hours 4,000 899,000
Materials handling 111,000 589,000
Machine setups 6.060 1,924,000
Returns and rework 490 100,000
Total Costs $23,087,000
Solve:
Calculate the current cost per unit, target cost for maintaining current market share and profitability.
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