Kaizen costing

Blade Runner produces regular scooters and motorised scooters. Blade Runner scooters are considered the most reliable in the marketplace. Demand has been volatile, with huge increases in demand during Christmas and just before university classes begin. In the past, the company filled demand by anticipating demand increases and manufacturing inventories ahead of time.

Recently, competition in the motorised scooter line has escalated, and Blade Runner needs to reduce prices and, therefore, cut costs. The motorised scooter's current cost is $150. To be competitive, the marketing department says the price should be 14% lower than the current price. Management currently achieves a pretax return of 14% on sales of the scooters and wants to continue this rate of return.

The following per-unit costs for motorised scooters are based on production of 700,000 per year.

Direct materials (variable)$ 45

Direct labor (variable)15

Machining costs (fixed depreciation and maintenance)10

Inspection costs (variable)10Engineering costs (fixed)20

Marketing costs (fixed)25Administrative costs (fixed)25

Total cost$150

1.Calculate the price recommended by the marketing department.(Round answer to 0 decimal places.)

2.Given the price you calculated in part (A), calculate the new contribution margin and the target cost.(Round answers to 2 decimal places.)Contribution margin$=? Target cost$=?

3Calculate the planned cost reduction for each cost category, assuming proportional cost reduction across categories.(Round answers to 3 decimal places.)