DeGaetano Corporation manufactures a product which sells for $1,000. Standard variable production costs are currently $450...
DeGaetano Corporation manufactures a product which sells for
$1,000. Standard variable production
costs are currently $450 per unit. Sales commissions total 20% of
each unit sold. Fixed costs total
$495,000 for the year.
The company has projected that demand for their product will be
limited to 2,000 units per year
for the in the upcoming year and foreseeable future. Due to
extremely competitive market
forces, they cannot charge more than the current $1,000 price. The
company wishes to
maintain a pre-tax profit of $315,000. Fixed costs are expected to
increase by 10%. Per-unit
selling expenses are expected to remain unchanged. Using a
target-costing approach, what
variable production cost per unit must the company attain in order
to meet their profit objective?
(Round to the nearest penny)
Homework Answers
| Target sales revenue = 2000*1000 = | $ 20,00,000 |
| Less: Sales commision at 20% | $ 4,00,000 |
| Net sales revenue | $ 16,00,000 |
| Less: Target pre tax profit | $ 3,15,000 |
| Less: Expected fixed costs = 495000*110% = | $ 5,44,500 |
| Target total variable cost | $ 7,40,500 |
| Number of units | 2000 |
| Target variable cost per unit | $ 370.25 |
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