Jaybird Company operates in a highly competitive market where the market price for its product is $50 per unit. Jaybird desires a $15 profit per unit. Jaybird expects to sell 5,000 units. Additional information is as follows: To achieve the target cost per unit, Jaybird must reduce total expenses by how much?
A) $14,500
B) $3,500
C) $23,000
D) $20,000
E) $13,000

Question

Jaybird Company operates in a highly competitive market where the market price for its product is $50 per unit. Jaybird desires a $15 profit per unit. Jaybird expects to sell 5,000 units. Additional information is as follows:  To achieve the target cost per unit, Jaybird must reduce total expenses by how much?
A) $14,500 
B) $3,500 
C) $23,000 
D) $20,000 
E) $13,000

Quizplus · Accepted Answer

Target cost = Expected selling price − desired profit
$50 − $15 = $35 per unit
$35 × 5,000 units = $175,000 total cost
Total costs = Product costs + Administrative costs
($15 × 5,000) + $45,000 + ($10 × 5,000) + 18,000 = $188,000
Excess costs needing to be reduced = Current total cost − Target total cost
$188,000 − $175,000 = $13,000

Jaybird Company Operates in a Highly Competitive Market Where the Market