Management cannot influence the price of a new product.The market price is $100 per unit.The estimated production cost is $30 per unit.The estimated nonproduction cost is $40 per unit.If the gross profit is 40 percent of the market price,what is the target cost of the new product?
A) $30
B) $40
C) $60
D) $70

Question

Quizplus · Accepted Answer

The gross profit is 40% of the market price, which means the gross profit is $40 since the market price is $100.

So, the target cost can be calculated as follows:

Target cost = Market price - Gross profit

Target cost = $100 - $40

Target cost = $60

Therefore, the target cost of the new product should be $60 if the gross profit is 40% of the market price.

Management Cannot Influence the Price of a New Product