Hostetter Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $30 per unit, management projects sales of 30,000 units. The new product would require an investment of $200,000. The desired return on investment is 13%. The target cost per unit is closest to:
A) $32.92
B) $30.00
C) $33.90
D) $29.13

Question

Quizplus · Accepted Answer

The target cost per unit is calculated by subtracting the desired return on investment per unit from the selling price. The desired return is 13% of the $200,000 investment, which is $26,000. Dividing this by the projected sales of 30,000 units gives a return of $0.87 per unit. Subtracting this from the selling price of $30 gives a target cost of $29.13 per unit.

Hostetter Corporation Would Like to Use Target Costing for a New