A company is preparing its’ budgets for the upcoming year.

A company is preparing its’ budgets for the upcoming year. Current direct materials cost is $150,000 and current direct manufacturing labour is $1,000,000, both of which are expected to increase by 4% next year. Overhead costs currently are (for the year just ending) variable $18,000 and fixed $30,000. The firm expects to achieve a 2% cost reduction in overhead costs by continuous improvement.