Flyer Company sells a product in a competitive marketplace. Market analysis indicates that its product would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Flyer's current full cost for the product is $44 per unit.
-The target cost is determined by taking
A)the expected selling price and subtracting the desired profit
B)the expected selling price and adding desired profit
C)the expected selling price and subtracting the budgeted standard cost
D)the budgeted standard cost and reducing it by 10%

Question

Flyer Company sells a product in a competitive marketplace. Market analysis indicates that its product would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Flyer's current full cost for the product is $44 per unit.​
-The target cost is determined by taking
A)the expected selling price and subtracting the desired profit
B)the expected selling price and adding desired profit
C)the expected selling price and subtracting the budgeted standard cost
D)the budgeted standard cost and reducing it by 10%

Quizplus · Accepted Answer

The target cost is determined by taking the expected selling price and subtracting the desired profit. This is because the target cost aims to ensure that the selling price covers both the cost of the product and the desired profit margin.

Flyer Company Sells a Product in a Competitive Marketplace