Target Costing Jared Monsma, Weekend Golfer's vice president for marketing, has concluded from his market analysis that sales have been dwindling for the standard golf cart because of aggres- sive 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 golf carts follow:
|
Budgeted Amount
|
Actual Amount
|
Actual Cost
|
|
Direct materials
|
$4,200,000
|
|
$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
1. Calculate the current cost and profit per unit.
2. How much of the current cost per unit is attributable to non-value-added activities?
3. Calculate the new target cost per unit for a sales price of $2,850 if the profit per unit is maintained.
4. What strategy do you suggest for Weekend Golfer to attain the target cost calculated in requirement 3?