Paddle Paradise,Inc.sells 2500 canoes per year at a sales price of $470 per unit.It sells in a highly competitive market and uses target pricing.The company has calculated its target full product cost at $820,000 per year.Fixed costs are $330,000 per year and cannot be reduced.What is the target variable cost per unit assuming units sold are equal to units produced?

Question

Quizplus · Accepted Answer

Target full product cost = Fixed costs + Target variable costs
$820,000 = $330,000 + (Target variable cost x 2500)
$490,000 = Target variable cost x 2500
Target variable cost = $196 per unit.