Perin Corporation would like to use target costing for a new product it is considering introduce.At a selling price of $25 per unit,management projects sales of 30,000 units.The new product would require an investment of $500,000.The desired return on investment is 11%.The target cost per unit is closest to:
A)$23.17
B)$25.00
C)$25.72
D)$27.75

Question

Quizplus · Accepted Answer

Target cost = Selling price - Desired profit
Desired profit = Investment x Desired ROI
Desired profit = $500,000 x 11% = $55,000

Target cost = $25 - $55,000/30,000
Target cost = $25 - $1.83
Target cost = $23.17

Therefore, the closest target cost per unit is $23.17, which is option A.

Perin Corporation Would Like to Use Target Costing for a New