Prasad & Green Inc. manufactures ergonomic devices for computer users. Some of its more popular products include glare screens (for computer monitors), keyboard stands with wrist rests, and laptop stands that allow air to circulate. Over the past five years, it has experienced rapid growth, with sales of all products increasing 20% to 50% each year.
Last year, some of the big manufacturers of computers also began introducing new products with ergonomic designs, such as glare screens and wrist rests, already built in. As a result, sales of Prasad & Green's accessory devices have dropped a bit. The company believes that the laptop stands will probably continue to show growth, but the other products will probably continue to decline. When it prepared the next year's bud- get, it gave increases to research and development so that the company could develop replacement products or expand into some other product line. Some product lines it is considering are general-purpose ergonomic devices, including back supports, footrests, and sloped writing pads.
The most recent results have shown that sales of the glare screens decreased more than was expected. As a result, the company may have a shortage of funds. Top management has therefore asked that all expenses be reduced by 10% to compensate for these reduced sales. Summary budget information is as follows:

Instructions
(a) Determine what the implications are of reducing each of the costs. For example, if the company reduces its raw materials costs, it may have to do this by purchasing lower-quality materials. This may affect sales in the long run.
(b) Based on your analysis in part (a), what do you think is the best way to obtain the $70,000 in cost savings that top management wants? Be specific. Are there any costs that cannot or should not be reduced? Why or why not?

Raw materials Direct labour Insurance Depreciation Machine repairs Sales salaries Office salaries Factory salaries (indirect labour) Total $240,000 110,000 50,000 90,000 30,000 50,000 80,000 50,000 $700,000