Question

Rocky River Company is a​ price-taker and uses target pricing. Refer to the following​ information: Production volume ​602,000 units per year Market price ​$30 per unit Desired operating income ​15% of total assets Total assets ​$13,700,000 What is the target full product cost per​ unit? (Round your answer to nearest​ cent.) Assume all units produced are sold.

Answer 1

$26.59

Step-by-step explanation:

Data provided in the question:

Production volume ​= 602,000 units per year

Market price = ​$30 per unit

Desired operating income = ​15% of total assets

Total assets ​= $13,700,000

Now,

Target profit = 15% of $13,700,000

= $2,055,000

Sale value = 602,000 × $30

= $18,060,000

Therefore,

Total cost = sale value -target profit

= $18,060,000 - $2,055,000

= $16,005,000

Thus,

Price per unit =
`\frac{\textup{Total cost}}{\textup{Production volume}}`

=
`(\$16,005,000)/(602,000)`

= $26.586 ≈ $26.59