Quality Industries manufactures large workbenches for indust

Quality Industries manufactures large workbenches for industrial use. Yewell Hartnet, the Vice President for marketing at Quality Industries, concluded from market analysis that sales were dwindling for Quality\'s workbenches due to aggressive pricing by competitors. Quality\'s workbench sells for $1,140 whereas the competition\'s comparable workbench sells for $1,060. Yewell determined that a price drop to $1,060 would be necessary to retain market share and annual sales of 13,000 tables. Cost data based on sales of 13,000 workbenches: Budgeted Quantity Actual Quantity Actual Cost Direct materials (pounds) 175,000 168,000 $3,450,000 Direct labor (hours) 72,800 71,500 825,000 Machine setups (no. of setups) 900 880 250,000 Mechanical assembly (machine hours) 273,000 281,250 3,750,000 If the profit per unit is maintained, the target cost per unit is (rounded to the nearest whole dollar): $489. $557. $516. $424. $345.

Solution

Answer:

Target cost per unit is =$557

Working notes for the above answer is as under

Budgeted
quantiry

Actual quantiry

Actual Cost

Direct material (pound)

175000

168000

3450000

Direct Labor (Hour)

72800

71500

825000

Machine set-up (No of set-up)

900

880

250000

Mechanical assembly (Machine-Hour)

273000

281250

3,750,000

8275000

Unit cost for 13000 tablets
=8275000/13000=636.54

637

Sales Price

1140

Current profit per unit

503

New sale price

1060

target cost per unit to maintain current profit
=1060-503

557