Larry Cable Inc. plans to introduce a new product and is using the target cost approach. Projected sales revenue is $810,000 ($4.05 per unit) and target costs are $730,000. What is the desired profit per unit?
A) $0.40
B) $2.03
C) $3.65
D) None of the above

Question

Quizplus · Accepted Answer

The desired profit per unit is calculated by subtracting the target cost per unit from the sales price per unit. The target cost per unit is $730,000 divided by the number of units (200,000 units, since $810,000 / $4.05 = 200,000 units). The target cost per unit is $3.65 ($730,000 / 200,000 units). The sales price per unit is $4.05. Therefore, the desired profit per unit is $4.05 - $3.65 = $0.40.