Warrenton Industries manufactures hydraulic components for largely automated machine tools. Myles English, the Vice President for Marketing, has concluded from his market analysis that sales are dwindling for one of the firm's products main products, a hydraulic valve, because of aggressive pricing by competitors. Warrenton's product sells for $525 whereas the competition's comparable part is selling in the $425 range. Mr. English has determined that a price drop to $400 is necessary to regain market share and annual sales of 1,000 units

Cost data based on sales of 1,000 valves:

	Budgeted Quantity	Actual Quantity	Actual Cost
Direct Materials (Sheet Metal)	10,000 sq. ft.	11,000 sq. ft	$55, 800
Direct labor	4, 600 hrs	5, 200 hrs	$155,000
Machine setups	2, 500 hrs	3,000 hrs	95, 000
Mechanical Assembly	3, 000 hrs	4, 000 hrs	140, 000

Required:

(1) Calculate the current cost and profit per unit.

(2) How much of the current cost per unit is attributable to non-value-added activities?

(3) Calculate the new target cost per unit for a sales price of $400 if the profit per unit is maintained.

(4) What strategy do you suggest for Warrenton to attain the target cost calculated in 3.

Answer rating: 100% (QA)

1 Calculate the current cost and profit per unit by the following way Current cost 55800 155000 ... View the full answer