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. Their current full cost for the product is $44 per unit.
What is the target cost of the company's product?
A) $44
B) $42
C) $43
D) $40

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.  Their current full cost for the product is $44 per unit.
What is the target cost of the company's product?
A) $44
B) $42
C) $43
D) $40

Quizplus · Accepted Answer

The target cost can be calculated as follows:
Target Cost = Selling Price - Desired Profit
Desired Profit = Selling Price * Desired Profit Margin
Desired Profit = $48 * 12.5% = $6 per unit
Target Cost = $48 - $6 = $42 per unit.
Therefore, the best choice is B as it is the calculated target cost.

Flyer Company Sells a Product in a Competitive Marketplace