Mountain Spring Inc.wants to produce and sell a new brand of bottled water.In order to penetrate the market, the product will have to sell at $2.00 per 12 oz.bottle.The following data has been collected: The target cost per bottle is

Question

Mountain Spring Inc.wants to produce and sell a new brand of bottled water.In order to penetrate the market, the product will have to sell at $2.00 per 12 oz.bottle.The following data has been collected:  The target cost per bottle is

Quizplus · Accepted Answer

In order to determine the target cost per bottle, we need to subtract the target profit margin from the selling price. The target profit margin for Mountain Spring Inc. is not given in the data. Therefore, we need to make an assumption about it. Let's assume that the target profit margin is 20%.
Selling price = $2.00
Target profit margin = 20% of selling price = 0.2 x 2 = $0.40
Target cost per bottle = Selling price - Target profit margin = 2 - 0.4 = $1.60
Since the target cost per bottle is $1.60, and the cost data in the table shows that the cost of materials, labor, and overhead per bottle is $1.00, the target cost per bottle can be achieved with an additional cost of $0.60 for marketing and distribution. Therefore, the best choice for the target cost per bottle is B) $0.60.