Calculating Target Cost
Pawkins Company uses target costing to ensure that its products are profitable. Assume Pawkins is planning to introduce a new product with the following estimates:
Estimated market price | $1,200 |
Annual demand | 100,000 units |
Life cycle | 5 years |
Target profit | 25% return on sales |
Required:
1. Compute the target cost of this product.
2. Compute the target cost if Pawkins wants a 35 percent return on sales.
3. Compute the target cost if Pawkins wants a 10 percent return on sales.
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