TwoShaft Inc. manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by OEM (Original Equipment Manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $660, and sales volume averages 32,000 units per year. Recently, TwoShaft's major competitor lowered the price of the equivalent part to $590. The market was very competitive, and TwoShaft realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year:The target cost for maintaining current market share and profitability is (round to nearest cent):

Question

Quizplus · Accepted Answer

To maintain current market share, TwoShaft must lower the cost of the part to match the competitor's price. The new selling price would be $590, which leaves a target profit of $660 - $590 = $70. Using the formula Target Cost = Selling Price - Target Profit, we get Target Cost = $590 - $70 = $520. To calculate the target cost per unit, we divide the total target cost by the expected sales volume: Target Cost per Unit = $520 ÷ 32,000 = $0.01625. Finally, we add the target unit cost to the target profit to arrive at the target selling price: Target Selling Price = Target Cost per Unit + Target Profit = $0.01625 + $70 = $70.01625. Rounded to the nearest cent, the target selling price is $70.02, which translates to a target cost of $590 - $70.02 = $519.98. Therefore, the answer is C - $396.61.