Rica Company is a price-taker and uses a target-pricing approach. Refer to the following information: How much is the target full product cost in total for the year? Assume all units produced are sold.

Question

Rica Company is a price-taker and uses a target-pricing approach. Refer to the following information:  How much is the target full product cost in total for the year? Assume all units produced are sold.

Quizplus · Accepted Answer

To find the target cost, we need to use the formula: Target Cost = Market Price - Desired Profit Margin. The market price is given as $8, and the desired profit margin is 20% of the market price, which is $1.60 ($8 x 0.20). Therefore, the target cost per unit is $6.40 ($8 - $1.60). The total number of units produced is not given, so we cannot calculate the total target cost. However, we know that the total revenue is $17,600,000, which is the market price multiplied by the number of units sold. If we divide this by the target cost per unit, we get the total number of units sold: $17,600,000 ÷ $6.40 = 2,750,000. To find the total target cost, we multiply the target cost per unit by the total number of units sold: $6.40 x 2,750,000 = $17,600,000. Therefore, the correct answer is B, $15,915,000.

Rica Company Is a Price-Taker and Uses a Target-Pricing Approach