Question

e) After completing Exercise 5, what is the Target Variable Cost per Unit? See circle.

Custom Touch Inc. produces high quality desk organizers. A recent analysis of fixed and variable costs per unit is as follows:

Pricing Strategy: Companies typically use one of two strategies when pricing its products Target Pricing (Costing): Used in competitive environments. This approach assumes that market forces largely set the price. So, the company must engineer their cost structure to compete Cost Plus Pricing: Assumes that the company has almost complete control of the price of the product. So, a profit is simply added to the unit cost to arrive at the price EXERCISE 5: Custom Touch Inc. produces high quality desk organizers. A recent analysis of fixed and variable costs per unit is as follow:s Variable Costs per unit Fixed Costs per unit TOTAL COST PER UNIT 2.61 0.84 $3.45 Target Pricing (Costing): Assume that Custom Touch currently operates in a competitive industry and prices its product using more of a Target Pricing approach. Management would like to evaluate whether the current selling price of $4.50 per unit and cost structure (shown previously) is sufficient to meet management's new goal of earning a profit of $90,700. Custom Touch anticipates producing and selling 80,000 units in the upcoming period (same as previous years). Start by calculating the target full cost of the product. See completed example below 80,000 units X $ 4.50360,000 (90,700) $ 269,300 Revenue Less: Desired Profit Target Full Cost

Answer 1

Target full cost	269,300
Less: Total fixed costs	- 67,200
Target variable cost (i)	202,100
Units (ii)	80,000
Target variable cost per unit (i)/(ii)	$2.53

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