Question: Benchmark Industries manufactures large workbenches for industrial use. Wayne Garrett, Benchmarks vice president for marketing, has concluded from his market analysis that sales are dwindling
Benchmark Industries manufactures large workbenches for industrial use. Wayne Garrett, Benchmark’s vice president for marketing, has concluded from his market analysis that sales are dwindling for the standard table because of aggressive pricing by competitors. This table sells for $875 whereas the competition sells a comparable table in the $800 range. Wayne has determined that dropping the price to $800 is necessary to maintain the firm’s annual market share of 10,000 tables. Cost data based on sales of 10,000 tables follow:
| Budgeted Amount | Actual Amount | Actual Cost | ||
| Direct materials (sq. ft.) | 400,000 | 425,000 | $2,700,000 | |
| Direct labor hrs (hrs.) | 85,000 | 100,000 | $1,000,000 | |
| Machine setups (hrs.) | 30,000 | 30,000 | $300,000 | |
| Mechanical assembly (hrs.) | 320,000 | 320,000 | $4,000,000 | |
| Input data (from above): | ||||
| Current selling price by Benchmark Industries | $875 | per unit | ||
| Competitor selling price per unit | $800 | per unit | ||
| Current market share (units), Benchmark Ind. | 10,000 | units | ||
Required
1. Calculate the current cost and profit per unit.
2. What amount 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 $800 if the profit per unit is maintained.
4. What strategy do you suggest for Benchmark to attain the target cost calculated in requirement 3?
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1 Cost per unit 2700000 1000000 300000 400000010000 800 per unit Profit per unit 875 800 75 per unit ... View full answer
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