Question

und- year teadil ата The hib et atch the price the urren set by a ormpetitor was bas INANCIAL ANALYSIS Jim arranged a meeting the following day with Susan Tessier, from purchasing, and Jose da Costa, from engineer- ing. During the meeting, Jim laid a gatherer chain on the conference room table and asked Jose to estimate the raw material content. After a little bit of work, Jose estimated that the product consisted of approximately 11.6 pounds of steel and 46 pins that joined the links. He also expected that Saunders would have approximately a 20 percent scrap rate, for steel only, as part of their normal production cost. Jose also commented that Saunders could use general-purpose equipment for the manufacturing and assembly process. Susan then pulled out her material cost file and made the following observations: ht for ra ch fo gn. S We just finished negotiations with our steel suppliers and rer ga expect to pay approximately $28.00 per hundredweight for this type of material. I am also buying the same pins for a couple of our divisions, and I figure Saunders is en of ket ere гe па meregu- s a paying about 3.5¢. Don't forget that for this part we pay its oduct ricin Current Year Two Years Ago Last year Budget $ 30.00 $ 24.12 $ 36.25 $ 22.61 62% $40.00 $21.25 53% Aftermarket price Purchase cost 80% Cost-price ratio Unit sales 350,000 410,000 475,000

Show Work Please.

What price do you think Deere should be paying Saunders for this product?

In other words, what is your estimated cost for the gatherer chain?

Answer 1

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Based on the financial analysis, it is estimated that each products is composed of 11.6 pounds of steel and 46 pins.

Because Saunders may waste a 20 percent scrap rate for steel, we need to multiply the cost of scrap by 1.2.

Furthermore, Susan pointed out that the cost for per hundred steels would be $28, and each pin would cost $0.035.

Hence, the material cost of the gatherer chain should be $5.50 for each unit

= (11.6 pounds × $0.28 × (1+20%)) + (46 pins × $0.035) = $5.50

In other words, the estimated cost for the gatherer Chain is $5.50 per unit