Question

Assume you’ve just started a new business to manufacture Fry-Plate, a new solar-powered cooking pan for camping. Your business analyst tells you that in the long run Fry-Plate will sell for $32.50 because, after a few years pass, similar products will be introduced by your competitors. Assume that, in the long run, you want to earn $4.50 on each unit of Fry-Plate sold. What is the target price? What is the target profit? What is the target cost? (Round your answers to 2 decimal places.)

Answer 1

First of all let's understand that Target costing is a system under which a company plans the price, costs, and the margins that it wants to achieve for a new product in advance. The following are the three terms that should be familiarized.

(a) Target price – It is the price the company is expected to sell.

(b) Target profit – It is the required margin the company is expected to gain on selling price.

(c) Target cost – It is the cost the company is expected to incur on manufacturing of the product.

Based on the given information, the target price, target profit and target cost is determined as below:

(a) Target price is the selling price. That is $32.50.

(b) Target profit is the amount we wish to earn. That is $4.50.

(c) Target cost is the difference between the target price and the target profit. That is $28 ($32.50 - $4.50).

Step-by-step explanation:

Answer 2

Target price $32.50

Target profit $4.50

Target cost $28.00

Step-by-step explanation:

Target price $32.50

Target profit $4.50

Target cost ($32.50-$4.50)

$28.00

Therefore the target price is $32.50,

The target profit is $4.50 while the target cost is $28.00