ABC seeks to purchase a component Q that is part of a final end product S. The final selling price of the product has been determined to be $47.85 for the component for the 1st year. Cost saving sharing assumes that ABC and XYZ will collaborate to identify a more efficient cost structure. Both firms agree on XYZs asset return requirements, and suppliers commitments to annual performance improvement targets. The following details the cost and investment data needed to develop a cost-based purchase contract:

- Material: $15/unit but at the end of 1st year, a joint value analysis team (ABC & XYZ) identifies a substitute material that reduces material costs by $1.50 per unit. Furthermore, overall material costs rise by 3% due to raw material cost increases in the 2nd year.

- Labour rate: $7.00/unit but it increases by 5% per units in the 2nd year due to a scheduled contractual increase at the supplier.

-Burden rate: 200% of direct labour. Burden rate is to describe the costs of manufacturing not directly identifiable with an exact product or unit of production. They are indirect costs.

-Scrap (materials + labour + burden) rate: 9%

-Demand volume: 160,000 per year

-Selling, general, and administrative expense rate: 10% of manufacturing cost

-Profit: ROI = 30% (Profit is estimated based on an average of the two year-investment and twoyear demand)

-Total Supplier investment in Yr 1 & Yr 2: $5 million

-Supplier improvement commitment: direct labour 10% reduction annually; scrap rate: 50% reduction annually

-Sharing % of improvement achievement between ABC and XYZ: 50-50.

Question: Fill in the various cost breakdown items in the following cost breakdown table for Year 1 and Year 2. Round the answers to 2 decimal places. (20 marks) Year 2 (per unit) Item 1 2 Cost Breakdown Table for Year 1 and Year 2 Cost and Profit breakdown Year 1 (per unit) Materials Labour Burden rate Total materials, labour and burden Scrap Manufacturing cost Selling and administrative expenses Total cost Profit Selling price 10