Question 2 (16 marks) Butterfly Inc. makes a single product, tennis balls. The company's only plant can produce up to 2.5 million cans of balls per year. Current production is 2 million cans per year. Annual manufacturing, selling and administrative fixed costs total $700,000. The variable cost of making and selling each can of balls is $1. Shareholders expect a 12% annual return on the company's $3 million of assets. Required: Maximum Word Count for this Question (all parts): 350 words

a) What is Butterfly Inc.'s current total cost of making and selling 2 million cans of tennis balls? What is the current cost per unit of each can of tennis balls?

b) Assume that Butterfly Inc. is a price-taker and the current market price is $1.45 per can of balls. (This is the price at which manufacturers sell to retailers.) What is the target cost of producing and selling one can of tennis balls?

c) Is the target cost per unit calculated in part (b) attainable under the current operating conditions?

d) If the cross-functional team believes that Butterfly Inc. cannot reduce its fixed costs, what is the target variable cost per can of balls?

e) Whether the cost reduction target is feasible or not, what can the cross-functional team do to further reduce cost? You can provide general or specific recommendations.