Problem Target costing: return on salesStacy Yoo, president of Caremore, Inc., a

Question

Problem Target costing: return on salesStacy Yoo, president of Caremore, Inc., an appliance manufacturer in Seattle, Washington, has been trying to decide whether one of her product-line managers, Bill Mann, has been achieving the companywide return-on-sales target of 45%, Stacy has just received data from the new target costing system regarding Bill's operation. Bill's sales volume was 300,000 appliances with an average selling price of $500 and expenses totaling $90 million. Required Determine whether Bill's return-on-sales ratio has met the companywide target. Has Bill done a good or a poor job? Explain.

Explanation / Answer

Average selling Price 500 Average expenses 90 Averge profit 410 (500-90) Sales volume 300000 Appliances Total sales value 150000000 (300000*500) Total profit 123000000 (300000*410) Return on sales ratio 82.00% (123000000/150000000) Yes target is met. Bill has done a good job since return is more than target return.

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