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Danna Martin, president of Mays Electronics, was concerned about the end-of-the year marketing report that she had just received. According to Larry Savage, marketing manager, a price decrease for the coming year was again needed to maintain the company's annual sales volume of integrated circuit boards (CBs). This would make a bad situation worse. The current selling price of $18 per unit was producing a $2-per-unit profithalf the customary $4-per-unit profit. Foreign competitors kept reducing their prices. To match the latest reduction would reduce the price from $18 to $14. This would put the price below the cost to produce and sell it. How could these firms sell for such a low price? Determined to find out if there were problems with the company's operations, Danna decided to hire a consultant to evaluate the way in which the CBs were produced and sold. After two weeks, the consultant had identified the following activities and costs:

Setting Up Equipment*	125,000
Materials Handling*	180,000
Inspecting Products*	122,000
Engineering Support	120,000
Handling Customer Complaints*	100,000
Filling Warranties*	170,000
Storing Goods*	80,000
Expediting goods*	75,000
Using Materials	500,000
Using Power	48,000
Manual Insertion Labor	250,000
Other Direct Labor	150,000
Total Costs	1,920,000 ( this total cost produces a unit cost of $16 for last year's sales volume.

he consultant indicated that some preliminary activity analysis shows that per-unit costs can be reduced by at least $7. Since the marketing manager had indicated that the market share (sales volume) for the boards could be increased by 50% if the price could be reduced to $12, Danna became quite excited. The Non-Value Added Costs total 852,000 and are labeled with an asteriks above.

Compute the Cost Savings per unit that would be realized if these non value costs were eliminated: ___?___ per unit

Compute the unit cost required to maintain current market share, while earning a profit of $4 per unit: __?__ per unit

Compute the unit cost required to expand sales 50%, assuming a per unit profit of $4: __?__per unit

How much cost reduction would be required to achieve each unit cost: Cost reduction to maintain __?__ per unit and Cost reduction to expand __?__ per unit.

Assume that further activity analysis revealed the following: switching to automated insertion would save $60,000 of engineering support and $90,000 of direct labor. Now, what is the total potential cost reduction per unit available from activity analysis? Carry your answer out to the nearest cent. __?__ per unit

Calculate income based on current sales, prices, and costs. Then calculate the income by using a $14 price (assume that current market share is maintained) and a $12 price, assuming that the maximum cost reduction possible is achieved (including Requirement 4's reduction).

Current __?__, $14 price __?__, at $12 price __?__

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