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 $686, and sales volume averages 31,500 units per year. Recently, MaxiDrive's major competitor reduced the price of its equivalent unit to $623. 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 MaxiDrive's production of 31,500 units:
Direct materials Direct labor Budgeted Quantity Budgeted Cost $ 7,150,000 Actual Quantity 2,765,000 Actual Cost $ 7,650,000 2,950,000 Indirect labor 2,760,000 Inspection (hours and cost) 1,180 430,000 1,650 2,725,000 415,000 Materials handling (number of purchases and cost) 5,450 825,000 4,100 Machine setups (number and cost) Returns and rework (number of times and cost) 2,050 430 1,075,000 2,150 810,000 1,050,000 145,000 630 195,000 $15,150,000 $15,795,000
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