Madrid Manufacturing is considering the manufacture of a new product. Madrid was hoping to sell the product for $504 per unit and estimated the total cost per unit to be $360. Madrid conducted market research and found out that the market is only willing to pay $462 for the new product. Using the target costing approach, how much will Madrid have to reduce the production cost in order to achieve the same amount of gross profit as originally planned?
A) $47
B) $31
C) $30
D) $42

Question

Quizplus · Accepted Answer

D) Calculations:
$504 - $360 = $144
$462 - $144 = $318
$360 - $318 = $42

Madrid Manufacturing Is Considering the Manufacture of a New Product