Question

Samples Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $21 per unit, management projects sales of 20,000 units. The new product would require an investment of $400,000. The desired return on investment is 12%.

The target cost per unit is closest to:

$21.00

$18.60

$23.52

$20.83

Answer 1

$18.60

Step-by-step explanation:

Target cost:

= Sales revenue - Profit

= (No. of units sold × Selling price per unit) - (Investment require × desired return on investment)

= (20,000 × $21) - ($400,000 × 0.12)

= $420,000 - $48,000

= $372,000

Target cost per unit:

= Target cost ÷ Number of units

= $372,000 ÷ 20,000

= $18.60

Therefore, the target cost per unit is closest to $18.60.