Star Stationery Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l |r |l| }
\hline \text { Production volume } & 602,000 &\text { units per year } \
\hline \text { Market price } & \$ 34& \text { per unit } \
\hline \text { Desired operating income } & 17 \% &\text { of total assets } \
\hline \text { Total assets } & \$ 1,600,000 \
\hline
\end{array}$$ 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: $$\begin{array} { | l |r |l| } 
\hline \text { Production volume } & 602,000 &\text { units per year } \
\hline \text { Market price } & \$ 34& \text { per unit } \
\hline \text { Desired operating income } & 17 \% &\text { of total assets } \
\hline \text { Total assets } & \$ 1,600,000 \
\hline
\end{array}$$ 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 can be calculated as follows: First, calculate the desired operating income by multiplying the total assets by the desired operating income percentage: $1,600,000 * 17% = $272,000. Then, calculate the total revenue by multiplying the production volume by the market price: 602,000 units * $34/unit = $20,468,000. Finally, subtract the desired operating income from the total revenue to find the target full product cost: $20,468,000 - $272,000 = $20,196,000.

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