I am working on a problem involving target costing. The question ask to find a t

Question

I am working on a problem involving target costing. The question ask to find a target cost for a price of 4,700, and seeks to earn a per unit profit of 25%, thus creating a target cost of $3,525.

The next question to go with the problem is "The team has estimated that the fixed production costs associated with the product will be $1,800,000, and variable costs to produce and sell the item will be $2,900 per unit. In light of this, how many units must be produced and sold to meet the target cost per unit?" I'm not sure how to work this one out..

Help

Explanation / Answer

target cost per unit is Variable cost + fixed cost / no of units

3525 = 2900 + 1800000 / No of units

625 = 1800000 / No of units

No of units = 1800000/625 = 2880

Hence 2,880 units must be produced

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