4) Management cannot influence the price of a new product. The market price is $100 per...
4) Management cannot influence the price of a new product. The market price is $100 per unit. The estimated production cost is $30 per unit. The estimated nonproduction cost is $40 per unit. If the gross profit is 40 percent of the market price, what is the target cost of the new product?
A) $30
B) $40
C) $60
D) $70
Please explain
Homework Answers
Answer : C) $60.
Explanation:
Target cost = Market price - Gross profit
= $100 - ($100 * 40%)
= $100 - $40 = $60
Target costing refer to the maximum allowable cost that is required to make a product design profitable . It is derived by deducting standard profit margin set by the firm from the competitive price of the product exists in the market. Thus estimated costs are not considered for calculating target cost.
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4) Management cannot influence the price of a new product. The
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