A company’s sales volume averages 4,000 units per year.

Recently, its main competitor reduced the price of its product to $48.
The company expects sales to drop dramatically unless it matches the competitor's price.

In addition, the current profit per unit must be maintained.
Information about the product (for production of 4,000) is as follows.

Standard Quantity Actual Quantity Actual Cost
Materials (pounds) 5,800 6,000 $60,000
Labor (hours) 1,800 2,000 $20,000
Setups (hours) 0 225 $8,000
Material handling (moves) 0 400 $5,000
Warranties (number repaired) 0 300 $15,000

Required
a. Calculate the target cost for maintaining current market share and profitability.
b. Calculate the non-value-added cost per unit.
c. If non-value-added costs can be reduced to zero, can the target cost be achieved?

To calculate the target cost for maintaining current market share and profitability, we need to consider the current profit per unit and the expected sales volume.

a. Calculate the target cost:
1. Find the total actual cost: Sum up the actual costs of materials, labor, setups, material handling, and warranties.
Total actual cost = $60,000 + $20,000 + $8,000 + $5,000 + $15,000

2. Calculate the profit per unit:
Profit per unit = (Total actual cost) / (Number of units produced)
Profit per unit = (Total actual cost) / (4,000)

3. Calculate the target cost:
Target cost = (Competitor's price) - (Profit per unit)
Target cost = $48 - (Profit per unit)

b. To calculate the non-value-added cost per unit, we need to identify the activities that do not directly add value to the product. In this case, the non-value-added costs are the setups, material handling, and warranties.

1. Find the total non-value-added costs:
Total non-value-added costs = (Setup actual quantity) x (Setup actual cost per unit) + (Material handling actual quantity) x (Material handling actual cost per unit) + (Warranties actual quantity) x (Warranties actual cost per unit)

2. Calculate the non-value-added cost per unit:
Non-value-added cost per unit = (Total non-value-added costs) / (Number of units produced)

c. If non-value-added costs can be reduced to zero, the target cost can be achieved by subtracting the profit per unit from the competitor's price. However, it's important to consider the impact of reducing these non-value-added costs on the overall production process and product quality. It may require process improvements or changes to achieve a zero non-value-added cost.

a. To calculate the target cost for maintaining current market share and profitability, we need to consider the reduction in sales volume due to the competitor's price reduction.

First, calculate the new expected sales volume:
New sales volume = Current sales volume * (1 - Percent reduction in sales)
New sales volume = 4,000 * (1 - 1) = 4,000 * 0 = 0

Since the company expects sales to drop dramatically to 0 units, the target cost cannot be calculated.

b. To calculate the non-value-added cost per unit, add up all the non-value-added costs and divide it by the number of units produced.

Non-value-added costs = Actual Cost of Material handling + Actual Cost of Setups + Actual Cost of Warranties
Non-value-added costs = $5,000 + $8,000 + $15,000 = $28,000

Number of units produced = Actual Quantity of Materials = 6,000

Non-value-added cost per unit = Non-value-added costs / Number of units produced
Non-value-added cost per unit = $28,000 / 6,000 = $4.67

c. If non-value-added costs can be reduced to zero, the target cost cannot be achieved because the competitor's price reduction will still impact sales volume.