Star Stationery Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | c | l|}
\hline \text { Production volume } & 600,000& \text { units per year } \
\hline \text { Market price } & \$ 30& \text { per unit } \
\hline \text { Desired operating income } & 15 \% &\text { of total assets } \
\hline \text { Total assets } & \$ 1,800,000 \
\hline
\end{array}$$ What is the target full product cost per year? Assume all units produced are sold.

Question

Star Stationery Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | c | l|} 
\hline \text { Production volume } & 600,000& \text { units per year } \
\hline \text { Market price } & \$ 30& \text { per unit } \
\hline \text { Desired operating income } & 15 \% &\text { of total assets } \
\hline \text { Total assets } & \$ 1,800,000 \
\hline
\end{array}$$ What is the target full product cost per year? Assume all units produced are sold.

Quizplus · Accepted Answer

The target full product cost is calculated by subtracting the desired operating income from the total revenue. Total revenue is 600,000 units * $30 = $18,000,000. Desired operating income is 15% of $1,800,000 = $270,000. Therefore, the target full product cost is $18,000,000 - $270,000 = $17,730,000.

Star Stationery Company Is a Price-Taker and Uses Target Pricing