Part 1: Price recommended by Marketing Existing

No. of units 700000

Per unit
Variable cost
Direct Materials 45
Direct labour 15
Inspection cost 10
Total variable cost 70
Machining cost 10
Engineering cost 20
Marketing & distribution cost 25
Administrative cost 25
Total fixed cost 80
total cost per unit 150
Margin existing 17
Selling price 167

Part 2: Desired Contribution and Price in the revised Scenario (QY IN LACS)

Variable cost Rational for classification of cost behaviour 7 Existing Targeted

Per unit Value Perunit
Direct Materials Varies in relation to prodcution activity 45 315 40.5
Direct labour Varies in relation to prodcution activity 15 105 13.5
Inspection cost Varies in relation to prodcution activity 10 70 9
Total variable cost 70 490 63

Can be both, but assumed that this is not related to

Machining cost variation in production
Emgineering manpoweractivity
cossts, Assumed as not having 10 70 9
Engineering cost impact on activity levels 20 140 18
Marketing & distribution cost Assumed as not having impact on activity levels 25 175 22.5
Administrative cost Costs not related to activity levels 25 175 22.5
Total fixed cost 80 560 72
total cost per unit 150 1050 135
Margin existing 17 15
Selling price 167 150
Contribution 97 87
Contribution % 58 58

7 lacs 7 lacs
Income statement based on existing prices and cost structure volunme volunme
Rs inlacs Rs inlacs
Exisitng price and cost Reduced price and cost
Per unit Value Per unit Value
Sales 167 1166.667 150 1050
Less: Variable costs 70 490 63 441
Contribution 97 676.6667 87 609
Contribution Margin 0.580000000084 0.58 0.58 0.58
Less: fixed cost 80 560 72 504
Net income 17 117 15 105
 Part 3:
Targeted
Possible actions for targeted reduction in each category
Cost
reduction

Targeted
Value
283.5 4.5 Price negotiations, pass on targeted reductions to first line vendors
94.5 1.5 Explore efficiency increase through process improvement, viz.Kaizen in assembly
63 1 explore reduction of manpower in inspection through systematic sampling
441 7

63 1 Reduction in worker idle time through flexible task allocations

126 2 Reduction in additional manpower not fully utlised
157.5 2.5 Reduction in logistics cost viz. surrendering unutilised warehouse spaces
157.5 2.5 Removing non-value added activity viz. outsourcing entire payroll activity
504 8
945 15
2
17
10

Part 4
8 8 lacs volunme
Rs inlacs
Reduced price and cost
Per unit Value
150 1200
63 504
87 696
0.58 0.58
63 504
24 192