8-5] Target Costing Oregon Equipment Company wants to develop a new log-splittin

Question

8-5]

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 $50 per unit sold. The cost of the raw materials required to produce the log-splitting machines amounts to $60 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. $Answer

Explanation / Answer

Answer:

Target profit = 600 x 10% = 60

Selling and marketing is 50 + 3000/5000= 50.06

Gross profit needs to be 60 +50.06 = 110.06

Target cost at 5000 units is 600-110.06 = 489.94

This includes materials of $60

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