Clark, SA., sells one of its products for £150 each. Sales volume averages 800 units per year. Recently, its main competitor reduced the price of its product to £130. Clark expects sales to drop dramatically unless it matches the competitor's price. In addition, the current profit per unit must be maintained. Information about the product (for production of 800) is as follows:
Required:

a.
Calculate the target cost for maintaining current market share and profitability.
b.
Calculate the nonvalue-added cost per unit.
c.
If nonvalue-added costs can be reduced to zero, can the target cost be achieved?

Question

Clark, SA., sells one of its products for £150 each. Sales volume averages 800 units per year. Recently, its main competitor reduced the price of its product to £130. Clark expects sales to drop dramatically unless it matches the competitor's price. In addition, the current profit per unit must be maintained. Information about the product (for production of 800) is as follows:
Required:
  
a.
Calculate the target cost for maintaining current market share and profitability.
b.
Calculate the nonvalue-added cost per unit.
c.
If nonvalue-added costs can be reduced to zero, can the target cost be achieved?

Quizplus · Accepted Answer

The Answer of Clark, SA., sells one of its products for £150 each. Sales volume averages 800 units per year. Recently, its main competitor reduced the price of its product to £130. Clark expects sales to drop dramatically unless it matches the competitor's price. In addition, the current profit per unit must be maintained. Information about the product (for production of 800) is as follows:
Required:
  
a.
Calculate the target cost for maintaining current market share and profitability.
b.
Calculate the nonvalue-added cost per unit.
c.
If nonvalue-added costs can be reduced to zero, can the target cost be achieved?

Clark, SA, Sells One of Its Products for £150 Each