Askew Enterprises produces a product with fixed costs of $200,000 and variable cost of $9 per...
Askew Enterprises produces a product with fixed costs of $200,000 and variable cost of $9 per unit. The company desires to earn a $100,000 profit and believes it can sell 20,000 units of the product.
Required
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Based on this information, determine the target sales price.
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Assume a competitor is currently selling a similar product for $20 per unit. Explain how Askew can use target costing to maintain its desired profitability
Homework Answers
| a) Calculation of selling price at a target profit 100000 | ||||||
| Fixed cost = 200000 | ||||||
| Desired profit =100000 | ||||||
| profit = quantity sold*selling price-variable cost-fixed cost | ||||||
| 100000= 20000*selling price-(20000*9)-200000 | ||||||
| selling price = 480000/20000 = 24 | ||||||
| target selling price = 24 | ||||||
| b) sale level | ||||||
| desired sale in unit = Fixed cost+required profit/contribution p.u | ||||||
| desired sale in unit = 200000+100000/(20-9) | ||||||
| desired sale in unit = 300000/11 | ||||||
| desired sale in unit = 27273 units |
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