Question

Ortega Company manufactures computer hard drives. The market for hard drives is very competitive. The current market price for a computer hard drive is $54. Ortega would like a profit of $14 per drive. What target cost Ortega should set to accomplish this objective

Answer 1

$40

Step-by-step explanation:

Target cost is the cost per unit arrived at after having deducted the required profit margin from the competitive market price.

It is a management technique that makes management think about ways to achieve a set target cost rather than forcing their actual cost plus profit margin on customers.

In this case, the competitive market price is $54 per unit of hard drive whereas the company expects to achieve a total profit of $14 per unit

Profit margin per unit=$14

competitive market price=$54

Target cost=competitive market price-profit margin per unit

Target cost=$54-$14

Target cost=$40