Calculate the target cost for expanding the market share

Reference no: EM13948132

WellCare Products manufactures a line of wheelchairs. During the past year, Well- Care sold its regular model for $720. Sales volume averages 20,000 units per year. Recently, a major competitor reduced the price of its regular model to $640. Well- Care's CEO was convinced that the price must be matched or sales would drop dramatically. Further research revealed that if WellCare could drop the selling price to $624 by the end of the year, the company could expand its share of the market by 20 percent. To maintain production of the product line, the current profit per unit must be maintained. The company currently produces 20,000 units per year and the CEO wants to know if the company can at least match the competitor's new price.

The plant controller and the cost accounting manager are convinced that the cost can be reduced by becoming more lean by reducing or eliminating wasteful activities. The amount of waste present in the system can be assessed by comparing the productive use of capacity (value added) with the total capacity. To help assess the waste, the actual cost of inputs, their value-added (ideal) quantity levels, and the actual quantity levels are provided (for production of 20,000 units). Assume there is no difference between actual prices of activity units and standard prices.

SQ	AQ	Actual Cost
Materials (lb.)	380,000 400,000	$ 8,400,000
Labor (hr.)	91,200 96,000	1,200,000
Setups (hr.)	- 6,400	480,000
Material handling (moves)	- 16,000	1,120,000
Warranties (number repaired)	- 16,000	1,600,000
Total		$12,800,000

Required

1. Calculate the target cost for expanding the market share by 20 percent, assuming that the per-unit profitability is maintained as requested by the CEO.

2. Calculate the non-value-added cost per unit. Assuming that non-value-added costs can be reduced to zero, what is the per-unit cost? Can the target cost for expanding market share be achieved? What actions would you take if you were Well- Care's CEO?

Reference no: EM13948132

Questions Cloud

Your results relate to creating a strategy to advance : Write a 1000-word paper in which you include the following: PART ONE - you may write in first person • Explain why you agree or disagree with your results.

Evaluate potential high risk inter company transactions : Evaluate potential high risk inter company transactions and choose the types of transactions you would most likely test for default. Support your response with examples

Final project for this course involves a decision problem : The Final Project for this course involves a decision problem that matters to you. This problem must be identified, defined, articulated, and solved.

The review class in the same package : A, are the check class and the review class in the same package B, what is the name of file 1? C,what is the name of file 2?

Calculate the target cost for expanding the market share : Calculate the target cost for expanding the market share by 20 percent, assuming that the per-unit profitability is maintained as requested by the CEO.

Explain what a sequential access file is. : What are the advantages and disadvantages of using sequential access data files?

Critically evaluate these comments : Critically evaluate these comments. Please do not wander; concentrate on the issues described in the quotation.

Modify the c program so that user inputs the purchase amount : Modify the C program so that the user inputs the purchase amount. Check the user's input for validity. In addition to calculating the sales tax for each location, calculate and display the total sale amount for each location.

What errors prevent the table displayed : What errors prevent the table displayed above from being first normal form compliant?Bring the table(s) into first normal form compliance without loss of any data. Identify primary and foreign keys (when present) for all tables.

User Account

All Pages