13.55 - Disadvantages include: the long-term contract,...

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13.55 (30 min) Cost reduction at 200,000 units This year Change Next year Sales price per unit $700 $ (120) $580 Product costs per unit Materials Computer chip $77.00 $ (29.00) $48.00 Motor $60.00 0 60.00 Housing unit $50.00 -18% 41.00 Mechanical parts $86.00 0% 86.00 Miscellaneous parts $22.00 -18% 18.04 Total materials $295.00 $253.04 Labor Assembly labor $90.00 -20% 72.00 Testing labor 60.00 -20% 48.00 Total labor $150.00 $ 120.00 Equipment and facilities Specific to Sergzig 70.00 -20% 56.00 General administrative 80.00 0 80.00 Total equip & facilities 150.00 1 36.00 Total product costs 595.00 5 09.04 Profit per unit $ 105.00 $ 70.96 Return on sales 15.0% 12.2%
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a. Advantages include: the long-term contract, which can insulate Sayre from price increases and guarantee quality; reductions in the costs of components, labor and facility costs.
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Unformatted text preview: Disadvantages include: the long-term contract, which can prevent Sayre from using multiple, competing suppliers. Risks involve the reliability of the supplier; the quality of the cheaper chips; perceived or actual reductions in quality of cheaper components. b. The analysis shows that Sayre cannot meet its target return on sales with the planned changes. c. A further price reduction will require significant cost reductions to meet the target return on sales, as follows. Sales, Units 200,000 Sales price per unit $ 540.00 Return on sales 15% Profit per unit $ 81.00 Target cost per unit $ 459.00 Total target cost $91,800,000 Currently feasible costs Product costs per unit $ 509.04 Currently feasible costs $101,808,000 Cost reduction target $10,008,000...
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13.55 - Disadvantages include: the long-term contract,...

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