Air Travel Inc. manufactures a wide variety of parts for commercial aircraft, including airplain engines. The component is purchased by OEM (original equipment manufactureres) such as Boeing, for use in the larger and more powerful outboards. The units sell for $10,000 and sales volume averages 2,000 units per year. Recently, AirTravel's major competitor lowered the price of the equivalent part to $9,500. The market was very competitive, and Air Travel realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year.

Cost and Usage for Production of 2,000 Units:

	Standard Cost	Actual Quantity	Actual Cost
Materials	$5,000,000		$7,000,000
Direct Labor	2,000,000		2,500,000
Indirect Labor	3,800,000		3,500,000
Inspection (hours)		1000	500,000
Materials handling (number of purchase)		50,000	400,000
Machine setups		3,000	2,000,000
Returns and rework (number of times)		200	100,000
Total			$16,000,000

Calculate the target cost for maintaining current market share and profitability.

Answer rating: 100% (QA)

Current Average Sales volume 2000 units per year Current selling price per unit 10000 Revised sellin... View the full answer