Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of their revenues, costs and desired profits, and has calculated its target full product cost. Please refer to the following information: $$\begin{array} { | l | r | r|}
\hline \text { Target full product cost } & \$ 500,000& \text { per year } \
\hline \text { Actual fixed cost } & \$ 280,000 &\text { per year } \
\hline \text { Actual variable cost } & \$ 2& \text { per unit } \
\hline \text { Production volume } & 150,000 &\text { units per year } \
\hline
\end{array}$$ Actual costs are currently higher than target full product cost.
- Assuming that fixed costs cannot be reduced, how much is the target variable cost?

Question

Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of their revenues, costs and desired profits, and has calculated its target full product cost. Please refer to the following information: $$\begin{array} { | l | r | r|} 
\hline \text { Target full product cost } & \$ 500,000& \text { per year } \
\hline \text { Actual fixed cost } & \$ 280,000 &\text { per year } \
\hline \text { Actual variable cost } & \$ 2& \text { per unit } \
\hline \text { Production volume } & 150,000 &\text { units per year } \
\hline
\end{array}$$ Actual costs are currently higher than target full product cost.
- Assuming that fixed costs cannot be reduced, how much is the target variable cost?

Quizplus · Accepted Answer

To find the target variable cost, subtract the actual fixed cost from the target full product cost: $500,000 - $280,000 = $220,000.

Gotham Products Is a Price-Taker and Uses Target Pricing Actual Costs Are Currently Higher Than Target Full Product Cost