Answer the following questions using the information below:
After conducting a market research study, Ed Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $240. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales.
-What is the target cost?
A) $5,760,000
B) $4,800,000
C) $3,840,000
D) $960,000

Question

Quizplus · Accepted Answer

The target cost is calculated by subtracting the target operating income from the total sales revenue. Total sales revenue is $240 (price per door) * 20,000 (sales volume) = $4,800,000. Target operating income is 20% of sales, which is 0.20 * $4,800,000 = $960,000. Therefore, the target cost is $4,800,000 - $960,000 = $3,840,000.

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