Recently, Shasta Corporation has decided to play a more-active role in the soda beverage industry. It is aware that the current market price for a can of soda is $2.00. Shasta plans to sell 100,000 cans of soda in its first year and would like to generate an ROI of 20% on its invested assets of $600,000. Using the target costing for target pricing approach, what will Shasta's target cost per unit be?
A) $0.80
B) $1.20
C) $2.00
D) $3.20

Question

Quizplus · Accepted Answer

Budgeted operating income = ROI x Invested Assets = $600,000 x 20% = $120,000; Budgeted Profit per Unit = $120,000/100,000 units = $1.20. Target Unit Cost = (Market Unit SP - Profit per Unit) = $2.00 - $1.20 = $0.80.

Recently, Shasta Corporation Has Decided to Play a More-Active Role