Quicksaw Inc. is a production company that is in the process of testing a strategic initiative aimed at increasing gross profit. The companys current sales revenue is $1.5 million. Currently, the companys gross profit is 35% of sales, but the companys target gross profit percentage is 45%. The companys current monthly cost of production is $975,000. Of this cost, 60% is for labor, 30% is for materials, and 10% is for overhead.

The strategic initiative being tested at Quicksaw is a redesign of its production process that splits the process into two sequential procedures. The makeup of the costs of production for Procedure 1 is currently 50% direct labor, 45% direct materials, and 5% overhead. The makeup of the costs of production for Procedure 2 is currently 40% direct labor, 25% direct materials, and 35% 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 profit at the current level of sales.

2. The companys actual direct materials cost is $270,000 for Procedure 1. Determine the actual cost of direct labor, direct materials, and overhead for each procedure, and the total cost of production for each procedure.

3. The company is planning a CSR initiative to reuse some of the indirect materials used in production during Procedure 2. These indirect materials normally makeup 75% of the overhead cost for Procedure 2, but the CSR initiative would reduce the usage of indirect materials. Determine what the maximum new cost of these indirect materials could be for Procedure 2 if this CSR initiative is expected to enable the company to meet its target gross profit percentage (holding all other costs constant).