Question

1. Analyze this situation: XYZ Company wishes to invest $ 2,000,000 for the design, development and production of a new model of blender. Accountants determine that the price cannot exceed $ 30 / unit, which is the competitive price in the market. The company wants to generate a minimum 15% profit on the sale of this product and estimates that it will sell 40,000 units in the year. 2. Determine the target cost per unit using the data presented. 3. Does the determined cost compare favorably with a cost that is determined on the basis of 130% of the variable cost per unit, which is $ 18 today? 4. Is the cost efficient based on 130% of the variable cost per unit? Justify your position You must present the answer to the exercise in full.

Answer 1

Solution:

2. Target cost per unit

= Selling price - Profit % * Selling price

= 30 - 15% * 30

= 30 - 4.5

= 25.5

Target cost per unit = 25.5 / unit

3. Variable cost per unit is 18 , 130% variable cost is

= 18 * 130%

= 23.4

Determined cost is not favourable with the cost determined on the basis of 130% of variable cost per unit. Because determined cost per unit is 25.5, and the 130% of variable cost of 18 oer unit is 23.4. so it is not favourable

4. Yes the cost based on 130% of variables cost of 18 per unit is efficient. Because determined cost  is higher than 130% of variable cost of 18 per unit. Determined cost is 25.5. the cost based on 130% of 18 is 23.4.