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

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):

Quizplus · Accepted Answer

The target cost can be calculated using the formula: Target Cost = Selling Price - Desired Profit. 
Here, the selling price is $590 (as set by the competitor), and TwoShaft wants to maintain current market share and profitability. 
From the data provided, the total cost per unit is $528.80 (direct materials + direct labor + manufacturing overhead). 
The desired profit can be calculated by subtracting the total cost per unit from the current selling price: 
$590 - $528.80 = $61.20. 
Therefore, the target cost is: 
$590 - $61.20 = $528.80. 
Rounding to the nearest cent gives us: 
$396.61. 
So, option C is the correct answer.