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Set Hitched Inc. is a production company that is in the process of testing a strategic initiative almed at increasing grosss profic. The company's current
Set Hitched Inc. is a production company that is in the process of testing a strategic initiative almed at increasing grosss profic. The company's current sales revence is: $1.5 mallion, Currentiy, the company's gross profit is 35% of sales, but the company's target gross profit percentage is 40%. The company's current monthly cost of production is $975,000. Of this cost, 60% is foe direct laboc, 30% is for direct materiafs, and 10% is for overhead. The strategic initiative being tested at Gek Hitched is a redesich of its prodistion process that splits the process into two-sequential procedures. The make up of the costs of production for Procedure 1 is currently 50% direct labor, 45% direct materials, and 5% overtiead. The make up of the costs of production for Procedure 2 is currenty 55% direct labor, 25% di rect materials, and 20% overhead. Company management estimates that Procedure 1 costs twice as much as Procedure 2. 1. Determine what the cost of direct labor, direct materials, and overhead for both Procedures 1 and 2 would need to be for the company to meet its target gross prafit at the current level of sales. Cost make up of Brocedure 21 and the total cost af production for each procequre Cost make up of Procedure 1: 2. The company's actual direct materials cost is $279,000 for Procedure 1. Determine the actual cost of direct labor, direct materiass, and overhead for each procedure, and the total cost of production for each procedure. Cost make up of Procedure 1t. Cost make up of Procedure 2 : 3. The conpany is pianning a csef initiative to reuse some of the indirect matecials used in production during Procedure 2 . These indirect materiais noemaily make inl matenals couid he for. Proceoure 2 if this CSA initiative is expected to enabie the compony to meet its farget grose proft percentage (hoiblig all other costi constant). Menimam new cost of P2 overthesd materais
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