MaxiDrive manufactures a wide variety of parts for recreational boating, includi
ID: 2519834 • Letter: M
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 as Mercury and Honda purchase the components for use in large, powerful outboards. The part sells for $610, and sales volume averages 25,000 units per year. Recently, MaxiDrive's major competitor reduced the price of its equivalent unit to $550. The market is very competitive, and Maxi-Drive realizes it must meet the new price or lose significant market share. The controller has assembled these cost and usage data for the most recent year for MaxiDrive's production of 25,000 units Budgeted Budgeted Actual Actual Quantity Cost Quantity Cost $ 6,500,000 2,500,000 2,500,000 S 7,000,000 Materials Direct labor Indirect labor Inspection (hours and cost) Materials handling (number of purchases and cost) Machine setups (number and cost) Returns and rework (number of times and cost) 2,625,000 2,400,000 920 300,000 1,000 350,000 3,500 500,000 3,450 485,000 1,400 750,000 1,500 725,000 300 80,000 500 130,000 $13,130,000 $13,715,000 Required 1. Calculate the target cost for maintaining current market share and profitability (Do not round intermediate calculations. Round your answer to two decimal places.) References eBook & Resources Difficulty: 2 Medium Learning Objecti management O Type here to searchExplanation / Answer
MaxDrive Manufacturer In the absense of information about which profit is to be used, there can be four possible answer to the given question. I am giving solution for all the four assumption. In order to arrive at target cost, we must find target profit Assumption 1 Current Actual profit margin on Selling price to be deducted from target price Assumption 2 Current Budgeted profit margin on Selling price to be deucted from target price Assumption 3 Absolute actual profit to be deducted from target price Assumption 4 Absolute budgted profit to be deducted from target price Though I suggest the assumption 1 might be the correct option. Assumption 1 As per actual data Target Cost = Target selling price minus target profit Current selling price 610 Current profit per unit A 61.4 (610-(13715000/25000)) Actual cost per unit B 548.6 Profit margin on sales A/B% 10.07 Here revised Target Selling Price is 550 Target profit =550*10.07% 55.385 Target Cost per unit 494.615 Assumption 2 As per budgeted data Target Cost = Target selling price minus target profit Current selling price 610 Current profit per unit A 84.8 (610-(13130000/25000)) Actual cost per unit B 525.2 Profit margin on sales A/B% 13.90 Here revised Target Selling Price is 550 Target profit =550*13.90% 76.45 Target Cost per unit 473.55 Assumption 3 As per actual data Target Cost = Target selling price minus target profit Current selling price 610 Current profit per unit 61.4 (610-(13715000/25000)) Actual cost per unit 548.6 Here revised Target Selling Price is 550 Target profit Absolute actual 61.4 Target Cost per unit 488.6 Assumption 4 As per budgeted data Target Cost = Target selling price minus target profit Current selling price 610 Current budgeted profit per unit 84.8 (610-(13130000/25000)) Budgeted cost per unit 548.6 Here revised Target Selling Price is 550 Target profit Absolute budgeted 84.8 Target Cost per unit 465.2 We appreciate the rating of ours answers. It really encourages us to improve or maintain quality of our answers. Thank You.