Perin Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $25 per unit, management projects sales of 30,000 units. The new product would require an investment of $500,000. The desired return on investment is 11%. The target cost per unit is closest to:
A)$23.17
B)$25.00
C)$25.72
D)$27.75

Question

Quizplus · Accepted Answer

The target cost per unit is calculated by subtracting the desired profit per unit from the selling price. Desired profit is calculated as 11% of the investment ($500,000), which is $55,000. Dividing this by the projected sales (30,000 units) gives a desired profit per unit of $1.83. Subtracting this from the selling price ($25) gives a target cost per unit of $23.17.

Perin Corporation Would Like to Use Target Costing for a New