Well-Bread Grain 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: $$\begin{array} { | l | l | l | }
\hline \text { Target full product cost } & \$ 520,000 & \text { per year } \
\hline \text { Actual fixed cost } & \$ 281,000 & \text { per year } \
\hline \text { Actual variable cost } & \$ 2 & \text { per unit } \
\hline \text { Production volume } & 150,000 & \text { units per year } \
\hline
\end{array}$$ 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

Well-Bread Grain 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: $$\begin{array} { | l | l | l | } 
\hline \text { Target full product cost } & \$ 520,000 & \text { per year } \
\hline \text { Actual fixed cost } & \$ 281,000 & \text { per year } \
\hline \text { Actual variable cost } & \$ 2 & \text { per unit } \
\hline \text { Production volume } & 150,000 & \text { units per year } \
\hline
\end{array}$$ 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 $520,000 per year. To find the target variable cost per unit, subtract the actual fixed cost from the target full product cost and then divide by the production volume. $$ \text{Target variable cost per unit} = \frac{\text{Target full product cost} - \text{Actual fixed cost}}{\text{Production volume}} = \frac{520,000 - 281,000}{150,000} = \frac{239,000}{150,000} = \$1.59 $$

Well-Bread Grain Company Is a Price-Taker and Uses Target Pricing