Morley Manufacturing is considering the manufacture of a new product. Morley was hoping to sell the product for $168 per unit and estimated the total cost per unit to be $120. Morley conducted market research and found out that the market is only willing to pay $154 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Morley wants to achieve the same amount of profit as originally planned?

Question

Quizplus · Accepted Answer

To achieve the same profit margin as originally planned, Morley needs to maintain the same profit per unit. Originally, the profit was $168 - $120 = $48. With the market willing to pay $154, the cost must be $154 - $48 = $106.

Morley Manufacturing Is Considering the Manufacture of a New Product