Homework #10

Get Hitched 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 $2,400,000. Currently, the company's gross profit is 35% of sales, but the company's target gross protit percentage is 40%. The company's current monthly cost of production is $1,560,000. Of this cost, 60% is for labor, 30% is for materials, and 10% is for overthead. The strategic initiative being tested at Get Hitched is a redesign of its production. process that splits the process into two sequential proceduresi The make up of the costs of production for Procedure 1 is currenthy 50% direct labor, 45% direct materials, and 5% overhead. The makeup of the costs of production for Procedure 2 is currenty 55% direct labor, 25% direct materials, and 20% overhead. Company management estimates that Procedure 1 costs twice as much as Procedure 2 . 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 pront at the current tevei of soles. Cost makeup of Procedure 1: Cost makeup of Procedure 2 : 2. The company's actual direct materials cost is $446,400 for Procedure 1. Determine the actual cost of direct laboc, direct materials, and ovethead for each procedure, and the total cost of production for each procedure. Cost makeup of Procedure 1: Cost makeup of Procedure 2 : 3. The company is planning a CSR initiative to reuse some of the indirect materials used in production during Procedure 2. These indirect matenals normally make up 70% of the overnead fost for Procedure 2 , but the cspt initiative would reduce the usage of indirect materiais. Determine what the maximum new cost of these indirect matenais could be for procedure 2 if this CsR initiative is expected to enabie the company to meet its target gross profit percentoge (hoiding ail other costs constant). Maximum new cost of p2 overhesd materials