Paper Tiger Stationary Company is a price-taker and uses target pricing. Refer to the following information: $$\begin{array} { | l | r | l | }
\hline \text { Production volume } & 602,000 & \text { units per year } \
\hline \text { Market price } & \$ 30 & \text { per unit } \
\hline \text { Desired operating income } & 15 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 1,800,000 & \
\hline
\end{array}$$ What is the target full product cost per year? Assume all units produced are sold.

Question

Paper Tiger Stationary Company is a price-taker and uses target pricing. Refer to the following information: $$\begin{array} { | l | r | l | } 
\hline \text { Production volume } & 602,000 & \text { units per year } \
\hline \text { Market price } & \$ 30 & \text { per unit } \
\hline \text { Desired operating income } & 15 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 1,800,000 & \
\hline
\end{array}$$ What is the target full product cost per year? Assume all units produced are sold.

Quizplus · Accepted Answer

The target full product cost per year is calculated by subtracting the desired operating income from the total revenue. Total revenue is 602,000 units * $30 = $18,060,000. Desired operating income is 15% of $1,800,000 = $270,000. Therefore, target full product cost = $18,060,000 - $270,000 = $17,790,000.

Paper Tiger Stationary Company Is a Price-Taker and Uses Target