Mason Kitchenware requires a 30% profit margin on the selling price of its jar openers.At a price of $16 per opener, the company expects to sell 8,000 openers.Total fixed costs are expected to be $28,000.How much is the target cost per jar opener?

Question

Quizplus · Accepted Answer

First, we need to calculate the variable cost per unit:
Profit margin = 30% of Selling price
Profit margin = 30% x $16
Profit margin = $4.80

Selling price = Variable cost + Profit margin
$16 = Variable cost + $4.80
Variable cost = $11.20

Next, we can use the following formula to find the target cost per jar opener:
Target cost per opener = Total fixed costs / Expected units sold + Variable cost per unit

Target cost per opener = $28,000 / 8,000 + $11.20
Target cost per opener = $3.50 + $11.20
Target cost per opener = $14.70

However, we need to add the 30% profit margin to obtain the target selling price:
Target selling price = Target cost per opener + Profit margin
Target selling price = $14.70 + 30% x $14.70
Target selling price = $19.11

Therefore, the target cost per jar opener is $11.20.

Mason Kitchenware Requires a 30% Profit Margin on the Selling