Sayre sewing machine company has been in operation formore than 25 years during this time it has shown consisting growth and has developed a strong customer satasfaction the company's president state that her business is a quality product at a competitive price until recently and this carred company to its current position the company is palnning for nest yesr operation and sayre is concerrned about projected increased foreign comptition
for the last three years sayre has been manufacturing as its only product a machine that has the charictristics of both a serger and zigzag machins called the sergzig durring the current year the company expectets to sell 200,000machine at a average price of $ 700 to remain competitive and continue to sell 200,000 machine Sayre belive will have reduce the selling price to $ 580 for the next year sayres earn 15 percent return on sales as shown
- Sales price per unit $ 700
- product cost per unit
- Motor 60
- housing unit 50
- mechanical parts 86
- misc part 22
- assembly labor 90
- testing labor 60 $ 445
- product level equipment 70
- genaral administartive cost 80
- total product cost $ 595
- profit per unit $ 105
- return on sales 15%
in panning for the next year even at the reduce sales price the company wants maintaine the 15percent return on sales by reducing cost as follows
sayre can purchase computer chip at $45 per unit by committing to long term purchase agremment for the year's needs with with suppliers the long term agrement calls for suppliers to certify that allchips are free defect sayre can reduce number of housing units and misc parts by 18 percents by substuting equivelant but less expensive parts and by redesigning the housing to eliminate multiple parts because of these changes the company can reduce assembly and testing labor and equipment and facility cost specific to the sergzig by 20 percents net of redesign cost all other product cost will remain the sam
A based on new data sof next year can the Sayre meet or exceed its target of 15 percents return on sales show calcualtion
B assumem that competitive during the next year is stronger than sayre anticipate and that average selling price is only $ 540 per unit calsulate the cost reduction to achieve the 15 percent return on sales show calculation.