Pedrotti Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $28 per unit, management projects sales of 30,000 units. The new product would require an investment of $300,000. The desired return on investment is 17%. The target cost per unit is closest to:
A)$32.76
B)$26.30
C)$28.00
D)$30.77

Question

Quizplus · Accepted Answer

Target Cost = Selling Price - Desired Profit per unit

Desired Profit per unit = (Desired ROI * Investment) / Number of Units

Desired Profit per unit = (17% * $300,000) / 30,000 = $1.70 per unit

Target Cost per unit = $28 - $1.70 = $26.30

Therefore, the target cost per unit is closest to $26.30, which is option B.

Pedrotti Corporation Would Like to Use Target Costing for a New