1. The management of Kozloff Corporation is considering introducing a new product - a compact barbecue. At a selling price of $74 per unit, management projects sales of 80,000 units. Launching the barbecue as a new product would require an investment of $800,000. The desired return on investment is 14%. The target cost per barbecue is closest to:
2. A new product, an automated crepe maker, is being introduced at Laguna Corporation. At a selling price of $52 per unit, management projects sales of 90,000 units. Launching the crepe maker as a new product would require an investment of $200,000. The desired return on investment is 15%. The target cost per crepe maker is closest to:
Determining the Target Cost Per Unit:
Firms usually determine the target cost per unit of a product to figure out if it is viable to produce that product. For determining the target cost, the rate of return required by investors is considered and prospective selling price per unit obtained through market research is considered.
Answer and Explanation: 1
The answers to both the given sub-questions are explained below:
1. Target cost per barbecue
- Here, the desired return on investment is 14%
- Also, the...
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fromChapter 10 / Lesson 1
Learn about target costing. Understand what target costing is, identify the target costing formula, explore target pricing strategies, and see examples.