Fred€™s Auto Components manufactures seats for an automobile company. The automobile company wants a new seat designed to accommodate drivers and passengers who weigh 100 kilograms or more, and at a price that is 10% less than the current price. If Fred€™s cannot meet the requested cut in price, the manufacturer will ask other suppliers to bid for the contract. Fred€™s manufacturing team has redesigned the seats and the manufacturing process to reduce costs by 10%. Now a team is assembled to reconfigure some of the administrative support tasks. If these costs can also be reduced by 10%, Fred€™s will be able to meet the new price requirement. The company€™s accountant has developed monthly costs for each activity in the support process, as shown in the following table.

Required:

A. Calculate the total current cost of support activities per month.

B. As the manufacturing team redesigned the seats, the support team requested a 10% reduction in the number of parts. The manufacturing team was able to eliminate one part per seat. In addition, the support team negotiated a new rate with the shipping company to reduce the price per kilogram by $0.08. Calculate the new total cost per month to determine whether the 10% reduction goal has been met.

C. Discuss other factors that must be considered when designing and shipping the new seat.

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Cost Driver Driver Quantity Per Month Cost Per Driver Activity 25 Ordering parts Receiving and inspecting parts Materials handling Packaging seats for shipping Shipping costs Return of defective seats Number of purchase orders Number of parts Number of parts Number of seats shipped Kilograms shipped Number of seats returned $ 50.00 $ 0.10 $ 0.20 $ 0.30 $ 0.50 7,500 7,500 1,500 22,500 $500.00 15