Rica Company is a price-taker and uses target pricing. Refer to the following information: $$\begin{array} { | l | r | l | }
\hline\text { Production volume } & 600,000 & \text { units per year } \
\hline \text { Market price } & \$ 30 & \text { per unit } \
\hline \text { Desired operating income } & 15 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,900,000 & \
\hline
\end{array}$$ How much is the target full product cost per unit? (Round your answer to nearest cent.) Assume all units produced are sold.

Question

Rica Company is a price-taker and uses target pricing. Refer to the following information: $$\begin{array} { | l | r | l | } 
\hline\text { Production volume } & 600,000 & \text { units per year } \
\hline \text { Market price } & \$ 30 & \text { per unit } \
\hline \text { Desired operating income } & 15 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,900,000 & \
\hline
\end{array}$$ How much is the target full product cost per unit? (Round your answer to nearest cent.) Assume all units produced are sold.

Quizplus · Accepted Answer

The formula for target full product cost per unit is:
Target full product cost per unit = Market price - Desired operating income per unit
Desired operating income is 15% of total assets = 0.15 x $13,900,000 = $2,085,000
Desired operating income per unit = $2,085,000 / 600,000 units = $3.475
Target full product cost per unit = $30 - $3.475 = $26.525 ≈ $26.53
Therefore, the best choice is B.

Rica Company Is a Price-Taker and Uses Target Pricing How Much Is the Target Full Product Cost Per Unit