Jared Monsma, Weekend Golfer's vice president for marketing, has concluded from his marketing analysis that the sales
Question:
Jared Monsma, Weekend Golfer's vice president for marketing, has concluded from his marketing analysis that the sales for the standard golf cart have been dwindling because of aggressive pricing by competitors. Weekend Golfer sells these golf carts online for $3,000, whereas the competition sells a comparable cart online in the $2,800 range. Jared has determined that dropping the price to $2,850 would regain the firm's annual market share of 8,000 golf carts. Cost data based on sales of 8,000 gas-operated golf carts follow:
| Direct materials | Budgeted Amount $4,200,000 | Actual Amount | Actual Cost $4,500,000 |
| Direct labor | 100,000 hrs. | 125,000 hrs. | 1,750,000 |
| Machine setups | 75,000 hrs. | 75,000 hrs. | 750,000 |
| Mechanical assembly | 375,000 hrs. | 400,000 hrs. | 5,000,000 |
Required:
a) Calculate the current cost and profit per unit.
b) How much of the current cost per unit is attributable to non-value-added activities?
c) Calculate the new target cost per unit for a sales price of $2,850 if the profit per unit is maintained.
d) What strategy do you suggest for Weekend Golver to attain the target cost calculated in requirement 3?
