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 $690, and sales volume averages 30,500 units per year. Recently, MaxiDrive's major competitor reduced the price of its equivalent unit to $616. The market is very competitive, and MaxiDrive realizes it must meet the new price or lose significant market share. Management has begun paying closer attention to costs and has reconfirmed the current existing standard costs. The controller then assembled the following cost and usage data for the most recent year for MaxiDrive's production of 30,500 units: Budgeted Quantity Direct materials Budgeted Cost $ 7,050,000 Actual Quantity Actual Cost Direct labor 2,725,000 Indirect labor 2,720,000 Inspection (hours and cost) 1,140 410,000 1,550 $ 7,550,000 2,900,000 2,675,000 405,000 Materials handling (number of purchases and cost) Machine setups (number and cost) 5,150 775,000 4,000 Returns and rework (number of times and cost) 1,950 410 1,025,000 2,050 760,000 1,000,000 135,000 610 185,000 $ 14,840,000 $ 15,475,000 Required: 1. Calculate the target cost for maintaining current market share and profitability. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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 $690, and sales volume averages 30,500 units per year. Recently, MaxiDrive's major competitor reduced the price of its equivalent unit to $616. The market is very competitive, and MaxiDrive realizes it must meet the new price or lose significant market share. Management has begun paying closer attention to costs and has reconfirmed the current existing standard costs. The controller then assembled the following cost and usage data for the most recent year for MaxiDrive's production of 30,500 units: Budgeted Quantity Direct materials Budgeted Cost $ 7,050,000 Actual Quantity Actual Cost Direct labor 2,725,000 Indirect labor 2,720,000 Inspection (hours and cost) 1,140 410,000 1,550 $ 7,550,000 2,900,000 2,675,000 405,000 Materials handling (number of purchases and cost) Machine setups (number and cost) 5,150 775,000 4,000 Returns and rework (number of times and cost) 1,950 410 1,025,000 2,050 760,000 1,000,000 135,000 610 185,000 $ 14,840,000 $ 15,475,000 Required: 1. Calculate the target cost for maintaining current market share and profitability. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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 $690, and sales volume averages 30,500 units per
year. Recently, MaxiDrive's major competitor reduced the price of its equivalent unit to $616. The market is very
competitive, and MaxiDrive realizes it must meet the new price or lose significant market share. Management has begun
paying closer attention to costs and has reconfirmed the current existing standard costs. The controller then assembled
the following cost and usage data for the most recent year for MaxiDrive's production of 30,500 units:
Direct materials
Direct labor
Indirect labor
Inspection (hours and cost)
1,140
Materials handling (number of purchases and cost)
Machine setups (number and cost)
5,150
775,000 4,000
1,950
1,025,000
Budgeted
Quantity
Budgeted Cost
$ 7,050,000
Actual
Quantity
Actual Cost
2,725,000
$ 7,550,000
2,900,000
2,720,000
410,000
1,550
2,675,000
405,000
760,000
1,000,000
2,050
Returns and rework (number of times and cost)
410
135,000
$ 14,840,000
610
185,000
$ 15,475,000
Required:
1. Calculate the target cost for maintaining current market share and profitability. (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Target cost
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