Calculate target cost for maintaining current market share

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Reference no: EM13877272

1. Why do prices at Orlando's theme parks remain high despite seasonal and economic cyclical ups and downs? What type of strategic pricing is used by these theme parks?

2. Target Costing MaxiDrive manufactures a wide variety of parts for recreational boating, including a gear and driveshaft part for high-powered outboard boat engines. Original equipment manufactur- ers 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 assem- bled these cost and usage data for the most recent year for MaxiDrive's production of 25,000 units:

 

Budgeted Quantity

Budgeted Cost

Actual Quantity

Actual Cost

Materials


$ 6,500,000


$ 7,000,000

Direct labor


2,500,000


2,625,000

Indirect labor


2,500,000


2,400,000

Inspection (hours and cost)

920

300,000

1,000

350,000

Materials handling (number of


$13,130,000


$13,715,000

purchases and cost)

3,500

500,000

3,450

485,000

Machine setups (number and cost)

1,400

750,000

1,500

725,000

Returns and rework (number of times and cost)

300

80,000

500

130,000

Required

1. Calculate the target cost for maintaining current market share and profitability.

2. Can the target cost be achieved? How?

Reference no: EM13877272

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