Question

Ocean Grove Vending Company has invested $980,000 in a plant to make vending machines. The company plans annual sales of 1600 vending machines at a selling price of $1100 each. The target operating income desired from the plant is $196,000 annually. What is the target cost base of each vending machine for Ocean Grove Vending Company

Answer 1

Target cost per machine = =$977.5

Step-by-step explanation:

Target cost is derived by subtracting a desired profit margin from a competitive selling price. It represents the cost at which a company must produce in order to achieve a desired profit

For Ocean Grove Vending Company, the target cost per vending machine can be determined as follows:

Target cost per unit of machine

= (Sales revenue - desired profit margin)/ No of units sold=

= (1600 × $11000) - $196,000)/1,600

=$977.5