Question

Paddle​ Paradise, Inc. sells 2,000 canoes per year at a sales price of $ 460 per unit. It sells in a highly competitive market and uses target pricing. The company has calculated its target full product cost at $ 810,000 per year. Fixed costs are $ 320,000 per year and cannot be reduced. What is the target variable cost per unit assuming units sold are equal to units​ produced?

Answer 1

Target variable cost per unit of Paddle Paradise, Inc. is $245 per canoe

Step-by-step explanation:

From the question, we have the following information:

Projected Units sold = Projected Units produced = 2,000 canoes;

Targeted total costs of production = $810,000;

Total fixed cost = $320,000;

To compute the targeted total variable costs of 2,000 canoes:

Targeted total variable cost = Targeted total production cost - Total fixed cost = $810,000 - $320,000 = $490,000;

To compute the targeted variable cost per canoe as followed:

Targeted variable cost per canoe = total variable cost/ number of canoe produced = $490,000 / 2,000 = $245 per canoe.

Thus, Paddle Paradise, Inc.'s targeted variable cost per canoe is $245.