Question
MaxiDrive manufactures a wide variety of parts for recreational boating, including a gear and driveshaft part for high-powered outboard boat engines. Original equipment manufacturers such
MaxiDrive manufactures a wide variety of parts for recreational boating, including a gear and driveshaft part for high-powered outboard boat engines. Original equipment manufacturers such as Mercury and Honda purchase the components for use in large, powerful outboards. The part sells for $655, and sales volume averages 28,000 units per year. Recently, MaxiDrives major competitor reduced the price of its equivalent unit to $577. The market is very competitive, and MaxiDrive realizes it must meet the new price or lose significant market share. Management has begun paying closer attention to costs and has reconfirmed the current existing standard costs. The controller then assembled the following cost and usage data for the most recent year for MaxiDrives production of 28,000 units:
Budgeted Quantity | Budgeted Cost | Actual Quantity | Actual Cost | |||||||||
Direct materials | $ | 6,800,000 | $ | 7,300,000 | ||||||||
Direct labor | 2,620,000 | 2,775,000 | ||||||||||
Indirect labor | 2,620,000 | 2,550,000 | ||||||||||
Inspection (hours and cost) | 1,040 | 360,000 | 1,300 | 380,000 | ||||||||
Materials handling (number of purchases and cost) | 4,400 | 650,000 | 3,750 | 635,000 | ||||||||
Machine setups (number and cost) | 1,700 | 900,000 | 1,800 | 875,000 | ||||||||
Returns and rework (number of times and cost) | 360 | 110,000 | 560 | 160,000 | ||||||||
$ | 14,060,000 | $ | 14,675,000 | |||||||||
Required:
1. Calculate the target cost for maintaining current market share and profitability. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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