Central Dental Company manufactures dental chairs.Its most popular model, Deluxe, sells for $2,500.It has variable costs totaling $1,400 and fixed costs of $500 per unit based on an average production run of 5,000 units.It normally has four production runs a year with $200,000 setup costs each time.Plant capacity can handle up to six runs a year for a total of 30,000 chairs.A competitor is introducing a new dental chair similar to Deluxe that will sell for $2,000.Management believes it must lower the price in order to compete.Marketing believes that the new price will increase sales by 25 percent a year.The plant manager thinks that production can increase by 25 percent with the same level of fixed costs.The company currently sells all the Deluxe chairs it can produce.Required:
What is the target cost per unit for the new price if target profit is 20 percent of sales?

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The Answer of Central Dental Company manufactures dental chairs.Its most popular model, Deluxe, sells for $2,500.It has variable costs totaling $1,400 and fixed costs of $500 per unit based on an average production run of 5,000 units.It normally has four production runs a year with $200,000 setup costs each time.Plant capacity can handle up to six runs a year for a total of 30,000 chairs.A competitor is introducing a new dental chair similar to Deluxe that will sell for $2,000.Management believes it must lower the price in order to compete.Marketing believes that the new price will increase sales by 25 percent a year.The plant manager thinks that production can increase by 25 percent with the same level of fixed costs.The company currently sells all the Deluxe chairs it can produce.Required:
What is the target cost per unit for the new price if target profit is 20 percent of sales?

Central Dental Company Manufactures Dental Chairs