Peacock Ltd sells 2200 kayaks per year at a price of $480 per unit.It sells in a highly competitive market and uses target pricing.The company has calculated its target full product cost at $820,000 per year.Fixed costs are $320,000 per year and cannot be reduced.How much is the target variable cost per unit?

Question

Quizplus · Accepted Answer

Using the formula for target full product cost:
Target Full Product Cost = Fixed Costs + Target Variable Cost per unit X Volume

We can plug in the given values:
$820,000 = $320,000 + Target Variable Cost per unit X 2200
$500,000 = Target Variable Cost per unit X 2200
Target Variable Cost per unit = $500,000/2200 = $227.27 (rounded to $227)

Therefore, the best choice is C) $227 as it is the calculated target variable cost per unit.

Peacock Ltd Sells 2200 Kayaks Per Year at a Price