Michigan Company has budgeted the following costs for the production of its only product:
$\begin{array}{ll}
\text { Direct Materials } & \$ 35,000 \
\text { Direct Labor } & 25,000 \
\text { Variable indirect production costs } & 30,000 \
\text { Fixed indirect production costs } & 15,000 \
\text { Variable selling and administrative costs } & 7,500 \
\text { Fixed selling and administrative costs } & 12,500\
\text { Total Costs }&\$125,000
\end{array}$
Michigan Company wants a profit of $50,000,and expects to produce 1,000 units.The market price is $150 per unit.What is the target cost per unit of the product?
A) $100 per unit
B) $125 per unit
C) $150 per unit
D) $175 per unit

Question

Quizplus · Accepted Answer

The target cost per unit is calculated by subtracting the desired profit from the total revenue and then dividing by the number of units. Total revenue is $150 per unit times 1,000 units = $150,000. Desired profit is $50,000. So, $150,000 - $50,000 = $100,000 total cost for 1,000 units, which means $100,000 / 1,000 units = $100 per unit.

Michigan Company Has Budgeted the Following Costs for the Production