Determinant Company is a price-taker and uses a target-pricing approach.Refer to the following information: $$\begin{array} { | l | r | l | }
\hline \text { Production volume } & 600,000 & \text { units per year } \
\hline \text { Market price } & \$ 30 & \text { per unit } \
\hline \text { Desired operating income } & 15 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,700,000 & \
\hline
\end{array}$$ What is the target full product cost in total for the year? Assume all units produced are sold.

Question

Determinant Company is a price-taker and uses a target-pricing approach.Refer to the following information: $$\begin{array} { | l | r | l | } 
\hline \text { Production volume } & 600,000 & \text { units per year } \
\hline \text { Market price } & \$ 30 & \text { per unit } \
\hline \text { Desired operating income } & 15 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,700,000 & \
\hline
\end{array}$$ What is the target full product cost in total for the year? Assume all units produced are sold.

Quizplus · Accepted Answer

The target full product cost is equal to the desired operating income plus the total variable cost. The desired operating income is 15% of total assets, which is $13,700,000 * 0.15 = $2,055,000. The total variable cost is equal to the market price per unit multiplied by the production volume, which is $30 * 600,000 = $18,000,000. Therefore, the target full product cost is $2,055,000 + $18,000,000 = $15,945,000.

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