Question

Rica Company is a price−taker and uses a target−pricing approach. Refer to the following​ information:Production volume602,000units per yearMarket price$34per unitDesired operating income17​%of total assetsTotal assets$13,700,000What is the desired profit for the​ year?

Answer 1

Desired profit for the year = $2,329,000

Step-by-step explanation:

Using the given information, we have

Production volume = 602,000 units

Market price = $34

Operating income desired = 17% of total assets

Total Assets = $13,700,000

Operating income = $13,700,000
`*` 17% = $2,329,000

Therefore desired profit = $2,329,000

therefore with this information desired profit per unit = $2,329,000/602,000 = $3.869

Target cost per unit = $34 - $3.869 = $30.131

Desired profit for the year = $2,329,000