Equival Company wishes to sell truck axles to car manufacturers. The current market price of the axles is $400, and Equival knows it must accept the market price. The company wishes to make a profit equal to 20% of the price. Using target costing, Equival will have to design the production process to meet this requirement. What is the desired target cost per axle?

Question

Quizplus · Accepted Answer

To achieve a 20% profit margin on a $400 selling price, Equival needs to calculate the target cost as follows: Selling Price = Cost + Profit. Therefore, Cost = Selling Price - Profit. Profit is 20% of $400, which is $80. Thus, the target cost is $400 - $80 = $320.

Equival Company Wishes to Sell Truck Axles to Car Manufacturers