Lisbon Manufacturing is considering the manufacture of a new product. Lisbon was hoping to sell the product for $588 per unit and estimated the total cost per unit to be $420. Lisbon conducted market research and found out that the market is only willing to pay $539 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Lisbon wants to achieve a 40% markup on total cost?

Question

Quizplus · Accepted Answer

To achieve a 40% markup on total cost, the selling price should be 1.4 times the cost. If the market price is $539, then the cost should be $539 / 1.4 = $385.00.

Lisbon Manufacturing Is Considering the Manufacture of a New Product