Determine the current cost per unit based on actual data

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Question - California Co. manufactures large valves for industrial use. The VP for marketing concluded from market analysis that sales were dwindling due to aggressive pricing by competitors. Sugarland's valve sells for $900 whereas the competition's comparable valve sells for $700. Jane determined that a price drop to $700 would be necessary to retain market share and annual sales of 5,000 valves.

Cost data based on sales of 5,000 valves:

 

Budgeted Quantity

Actual Quantity

Actual Costs

Direct Materials (pound)

90,000

72,000

$900,000

Direct Labor (hours)

90,000

80,000

$720,000

Machine Setup (# of setups)

30,000

28,000

$840,000

Assembly (machine hours)

50,000

44,000

$440,000

Required -

a) Determine the current cost per unit based on actual data?

b) Determine the current profit per unit based on actual data?

c) If the current level of profit dollar per unit is maintained, determine the target cost per unit?

d) In order to reduce costs so as to reach the desired target cost, the company should also focus on reducing the cost of what manufacturing costs?

Reference no: EM133087486

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