Answer the following question(s)using the information below.After conducting a market research study, Schultz Manufacturing decided to produce a new interior door to complement its exterior door line.It is estimated that the new interior door can be sold at a target price of $60.The annual target sales volume for interior doors is 20,000.Schultz has target operating income of 20% of sales.
-What is the target cost for each interior door?
A)$48
B)$72
C)$80
D)$38
E)$40

Question

Quizplus · Accepted Answer

Target operating income = Target sales volume x Target price x Target operating income %
20,000 x $60 x 20% = $240,000
Total target costs = Total target sales - Target operating income
= 20,000 x $60 - $240,000
= $1,080,000 - $240,000
= $840,000
Target cost per unit = Total target costs / Target sales volume
= $840,000 / 20,000
= $42
Therefore, the target cost for each interior door is $42. 
Since Schultz Manufacturing wants to achieve a target operating income of 20%,the target cost per unit should be 80% of the target price per unit.
Target cost per unit = Target price per unit x (1 - Target operating income %)
$60 x (1 - 20%) = $60 x 80% = $48.
Therefore, the correct answer choice is A) $48.

Answer the Following Question(s)using the Information Below