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Calculate the target cost for maintaining current market

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Reference no: EM132782116

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 $640, and sales volume averages 27,000 units per year. Recently, MaxiDrive's major competitor reduced the price of its equivalent unit to $564. 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 27,000 units:

 

Budgeted
Quantity

Budgeted
Cost

Actual
Quantity

 

Actual
Cost

Direct materials

 

$ 6,

700, 000

 

 

$ 7,

200,

000

Direct labor

 

2,

580, 000

 

 

2,

725,

000

Indirect labor

 

2,

580, 000

 

 

2,

500,

000

Inspection (hours and cost)

iaterials handling (number of purchases and cost)

1, 000
4, 100

 

340, 000
600, 000

1,
3,

200
650

 

370,
585,

000
000

Lachine setups (number and cost)

1,600

 

850, 000

1,

700

 

825,

000

Returns and rework (number of times and cost)

340

 

100,000

 

540

 

150,

000

 

 

$13,

750, 000

 

 

$14,

355,

000

Required:

Problem 1: Calculate the target cost for maintaining current market share and profitability. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Reference no: EM132782116

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