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Question
Roseville, Ltd., sells one of its products for $500 each. Sales volume averages 1,000 units per year. Recently, its main competitor priced their competing product at 10 percent below Roseville's price. Roseville expects its sales to drop dramatically unless it matches the competitor's price. Despite the anticipated price reduction, Roseville would like to maintain its current profit per unit.
Information regarding the inputs required to produce 1,000 units of product is as follows:
SQ
AQ
Actual Cost
Materials (kilograms)
7,800
8,000
$160,000
Labour (hours)
600
720
108,000
Setups (hours)
-0-
34,000
Material handling (moves)
300
58,000
Warranties (number repaired)
200
60,000
(A) Calculate the target cost for maintaining current market share and profitability.
(B) Calculate the nonvalue-added cost per unit.
(C) If nonvalue-added costs can be reduced to zero, can the target cost be achieved? Explain your answer.
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