Rocky River Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | l | l | }
\hline \text { Production volume } & \$ 02,000 & \text { units per year } \
\hline \text { Market price } & \$ 30 & \text { per unit } \
\hline \text { Desired operating income } & 15 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,700,000 & \
\hline
\end{array}$$ What is the target full product cost per unit? (Round your answer to nearest cent.)Assume all units produced are sold.

Question

Rocky River Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | l | l | } 
\hline \text { Production volume } & \$ 02,000 & \text { units per year } \
\hline \text { Market price } & \$ 30 & \text { per unit } \
\hline \text { Desired operating income } & 15 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,700,000 & \
\hline
\end{array}$$ What is the target full product cost per unit? (Round your answer to nearest cent.)Assume all units produced are sold.

Quizplus · Accepted Answer

The target full product cost per unit can be calculated as:
Target Price = Total Cost / (1 - Desired markup as a decimal)
$70 = Total Cost / (1 - 0.4)
Total Cost = $70 / 0.6 = $116.67
Target Full Product Cost per unit = Total Cost / Number of Units
$116.67 / 4,000 = $0.0292 (rounded to nearest cent)
Therefore, the target full product cost per unit is $0.0292 or $0.03. Option B is the closest answer to this calculation.

Rocky River Company Is a Price-Taker and Uses Target Pricing