After conducting a market research study, Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $260. The annual target sales volume for interior doors is 20,000. Magnificent has target operating income of 40% of sales.
What is the target cost for each interior door?

Question

Quizplus · Accepted Answer

Estimated sales revenue = $260 × 20,000 units = $5,200,000.
Target operating income = $5,200,000 × 40% = $2,080,000.
Target cost = $5,200,000 - $2,080,000 = $3,120,000.
Target cost per unit = $3,120,000 / 20,000 units = $156 .

After Conducting a Market Research Study, Magnificent Manufacturing Decided to Produce