Target Costing Oregon Equipment Company wants to develop a new log-splitting mac

Question

Target Costing Oregon Equipment Company wants to develop a new log-splitting machine for rural homeowners. Market research has determined that the company could sell 5,000 log-splitting machines per year at a retail price of $600 each. An independent catalog company would handle sales for an annual fee of $3,000 plus $70 per unit sold. The cost of the raw materials required to produce the log-splitting machines amounts to $50 per unit. If company management desires a return equal to 10 percent of the final selling price, what is the target conversion and administrative cost per unit? Round answer to the nearest cent

Explanation / Answer

Retail price per unit $      600.00 Less: Cost of raw material per unit $        50.00 Fee per unit for sales work to catalog company = 70+3000/5000 (Fixed cost)= $        70.60 Target conversion and administrative cost $      479.40

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