Sparks Stationery Company is a price-taker and uses target pricing.The company has just done an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Assume all products produced are sold.Refer to the following information: $$\begin{array} { | l | r | l | }
\hline \text { Target full product cost } & \$ 510,000 & \text { per year } \
\hline \text { Actual fixed cost } & \$ 280,000 & \text { per year } \
\hline \text { Actual variable cost } & \$ 2 & \text { per unit } \
\hline \text { Production volume } & 150,000 & \text { units per year } \
\hline
\end{array}$$ Actual costs are currently higher than target full product cost.Assuming that fixed costs cannot be reduced,what is the target variable cost per unit? (Round your answer to the nearest cent.)

Question

Sparks Stationery Company is a price-taker and uses target pricing.The company has just done an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Assume all products produced are sold.Refer to the following information: $$\begin{array} { | l | r | l | } 
\hline \text { Target full product cost } & \$ 510,000 & \text { per year } \
\hline \text { Actual fixed cost } & \$ 280,000 & \text { per year } \
\hline \text { Actual variable cost } & \$ 2 & \text { per unit } \
\hline \text { Production volume } & 150,000 & \text { units per year } \
\hline
\end{array}$$ Actual costs are currently higher than target full product cost.Assuming that fixed costs cannot be reduced,what is the target variable cost per unit? (Round your answer to the nearest cent.)

Quizplus · Accepted Answer

The target full product cost is $510,000 per year. With fixed costs at $280,000 per year, the total available for variable costs is $510,000 - $280,000 = $230,000. Dividing this by the production volume of 150,000 units gives a target variable cost per unit of $230,000 / 150,000 = $1.53.

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