Required: 1. Calculate the Current Cost and Profit Per Unit

question 55

Essay

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 $400 if the profit per unit is maintained.
4. What strategy do you suggest for Warrenton to attain the target cost calculated in part (3)?Warrenton Industries manufactures hydraulic components for large automated machine tools. Myles English, the Vice President for Marketing, has concluded from his market analysis that sales are dwindling for one of the firm's products main products, a hydraulic valve, because of aggressive pricing by competitors. Warrenton's product sells for $525 whereas the competition's comparable part is selling in the $425 range. Mr. English has determined that a price drop to $400 is necessary to regain market share and annual sales of 1,000 units.
Cost data based on sales of 1,000 valves:

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Definitions:

Productivity

The efficiency at which inputs (such as labor and capital) are converted into outputs (goods or services).

Communication Problems

Issues that arise in the transmission of information that can lead to misunderstandings, conflicts, and errors in decision-making.

Reinforcement Theory

A concept in psychology that suggests behavior is shaped by its consequences, through rewards or punishments.

Environmental Consequences

The effects or outcomes that activities or policies have on the natural environment, including impacts on air, water, and land.