Question

Fantabulous Products sells 2,200 kayaks per year at a price of $470 per unit. Fantabulous sells in a highly competitive market and uses target pricing. The company has $1,000,000 of assets, and the shareholders wish to make a profit of 18% on assets. Assume all products produced are sold. What is the target full product cost

Answer 1

Target cost per unit = $388.18

Step-by-step explanation:

Target costing is useful when a company wishes to make a certain desired level of profit by selling a product in a market where the price is given.

Target cost is calculated by subtracting desired profit margin from competitive selling price.

Total target cost = ( 480*2200) - (18% × 1,000,000)

= 854,000

Target cost per unit =( ($470 × 2,200) - (18% × 1,000,000))/2,200

Target cost per unit = $388.18