Question

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 $700, and sales volume averages 35,000 units per year. Recently, MaxiDrive’s major competitor reduced the price of its equivalent unit to $678. 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 35,000 units:

	Budgeted Quantity			Budgeted Cost			Actual Quantity			Actual Cost
Direct materials				$	7,500,000					$	8,000,000
Direct labor					2,660,000						3,125,000
Indirect labor					2,900,000						2,620,000
Inspection (hours and cost)		1,320			500,000			2,000			450,000
Materials handling (number of purchases and cost)		6,500			1,000,000			4,450			985,000
Machine setups (number and cost)		2,400			1,250,000			2,500			1,225,000
Returns and rework (number of times and cost)		500			180,000			700			230,000
				$	15,990,000					$	16,635,000

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.)

Answer 1