After conducting a market research study, Harry Products decided to produce an e

Question

After conducting a market research study, Harry Products decided to produce an electric coffee pot to complement its line of kitchen products. It is estimated that the new coffee pot can be sold at a target price of $23. The annual target sales volume for the coffee pot is 300,000. Hary Products has target operating income of 18% of sales. Required:

a. What are the target sales revenues?

b. What is the target operating income?

c. What is the total target cost?

d. What is the target cost for each coffee pot?

Explanation / Answer

a. Target sales revenues = $23 * 300,000 = $6,900,000

b. Target operating income = $23 * 300,000 * 18% = $1,242,000

c. Total target cost = $23 * 300,000 * (1 - 0.18) = $5,658,000

d. Target cost for each coffee pot = $23 * (1 - 0.18) = $18.86

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