Answer the following questions using the information below:
Potter Products has produced an electric coffee pot to complement its range of kitchen products.The new coffee pot can be sold at a target price of $46,and annual target sales volume for the coffee pot is 250 000.Potter has target operating profit of 20% of sales.
-What is the target cost for each coffee pot?
A)$42.15
B)$36.80
C)$35.50
D)$46.00

Question

Quizplus · Accepted Answer

The target cost per coffee pot can be calculated by first determining the target total revenue, which is $46 * 250,000 = $11,500,000. With a target operating profit of 20% of sales, the target profit is $11,500,000 * 20% = $2,300,000. Subtracting the target profit from the target total revenue gives the target total cost, $11,500,000 - $2,300,000 = $9,200,000. Dividing this by the annual target sales volume (250,000 units) gives the target cost per unit: $9,200,000 / 250,000 = $36.80.

Answer the Following Questions Using the Information Below