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One of the models of Luboh P/L MXL-Gamer has the following cost pattern. Due to...

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Accounting

One of the models of Luboh P/L MXL-Gamer has the following cost pattern. Due to overseas competition, the business wants to reduce its cost structure for the up coming year. The popular model is selling in the market where the business is enjoying a 35% profit on this particular model and wishes to continue achieving the same margin in the coming year. The fierce competition in the market is compelling the business to push its sales price downward by 10% which is recommended by the marketing manager. The only way to achieve the same profit margin is by reducing its costs proportionately.

image

Required

a) Calculate the (sales) price recommended by the marketing department.

b) Given the price you calculated in part (a), calculate the new contribution margin and the target cost.

c) Calculate the planned cost reduction for each cost category, assuming proportional cost reduction across categories

The following per-unit costs for MX.-Gamer are based on production of 7,500 per year. Hard Drive Mega-Fans RAM GPU Direct labour Administrative and other costs $ 490.00 $ 150.00 $ 300.00 $ 450.00 $ 450.00 $ 500.00 Total cost $2,340.00

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