Direct materials $240,000
Direct labor 110,000
Machine repairs 30,000
Sales salaries 50,000
Office salaries 80,000
Factory salaries (indirect labor) 50,000
Using the information above, answer the following questions.
(a) What are the implications of reducing each of the costs? For example, if the company reduces direct materials costs, it may have to do so by purchasing lower-quality materials. This may affect sales in the long run.
(b) Based on your analysis in (a), what do you think is the best way to obtain the $70,000 in cost savings requested? Be specific. Are there any costs that cannot or should not be reduced? Why?
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