Fester Company was making a product for $60 and selling it for $80. A competitor began selling the same product for $68. If Fester is to meet the competition's price, and maintain the same amount of profit per unit, what is target cost?

Question

Quizplus · Accepted Answer

To maintain the same amount of profit per unit, Fester will need to reduce their cost to match their competitor's price. This means they need to subtract the same amount from their original profit of $20 per unit to get a new target profit of $12 per unit ($20 - $8). Therefore, the target cost would be the sum of the target profit and the competitor's selling price: $68 + $12 = $80. To find the original cost, we can subtract the original profit from the original selling price: $80 - $20 = $60. Therefore, Fester's target cost would be $80 - $12 = $68, and the amount they need to decrease their cost from the original is $60 - $68 = $8 per unit.

Fester Company Was Making a Product for $60 and Selling