Cumulative Exercise (Chapter 7) Target costing, ABC Fred’s Auto Components manufactures seats for an
automobile company. The automobile company wants a new seat designed to accommodate drivers and passengers
who weigh 200 pounds or more and at a price that is 10% less than the current price. If Fred’s cannot meet the
requested cut in price, the manufacturer will ask other suppliers to bid for the contract. Fred’s manufacturing team
has redesigned the seats and the manufacturing process to reduce costs by 10%. Now a team is assembled to
reconfigure some of the administrative support tasks. If these costs can also be reduced by 10%, Fred’s will be able
to meet the new price requirement. The company’s accountant has developed monthly costs for each activity in the
support process, as shown in the following table.
REQUIRED
:
1. Calculate the total current cost of support activities per month.
2. As the manufacturing team redesigned the seats, the support team requested a reduction in the number of
parts by 10%. The manufacturing team was able to eliminate 1 part per seat. In addition, the support team
negotiated a new rate with the shipping company to reduce the price per pound by $0.03. Calculate the new total
cost per month to determine whether the 10% reduction goal has been met
