TwoShaft Inc. manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by OEM (Original Equipment Manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $940, and sales volume averages 33,400 units per year. Recently, TwoShaft's major competitor lowered the price of the equivalent part to $730. The market was very competitive, and TwoShaft realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year:
Cost and Usage for Production of 32,000 Units
Standard Cost
Actual Quantity
Actual Cost
Materials
$
6,670,000
$
7,150,000
Direct labor
2,286,000
2,190,000
Indirect labor
3,278,000
3,086,000
Inspection (hours)
4000
543000
Materials handling (number of purchases)
73,000
402200
Machine setups
5300
1,505600
Returns and rework (number of times)
980
97300
Total
$
14984100
a)The target cost for maintaining current market share and profitability is (round to nearest cent):
b) How should the company attempt to reduce cost to meet the new target?