Problem: 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 aggressive pricing by competitors. Weekend Golfer sells these golf carts online for $3,000, whereas the competition sells a comparable cart online in the $2,900 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 hrs |
100,000 |
125,000 |
$1,750,000 |
| Machine setups |
75,000 |
75,000 |
$750,000 |
| Mechanical assembly |
375,000 |
400,000 |
$5,000,000 |
| Input data (from above): |
|
|
| On-line selling price per unit = |
|
$3,000 |
| Competitor's on-line selling price per unit = |
$2,900 |
| Recommeded selling price by Weekend Golfer = |
$2,850 |
| Normal sales volume per year by Weekend Golfer = |
8,000 |
Requirements:
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?