Rica Company is a price-taker and uses target pricing.Refer to the following information:
$$\begin{array} { | l | l | l | }
\hline \text { Production volume } & \$ 601,000 & \text { units per year } \
\hline \text { Market price } & \$ 34 & \text { per unit } \
\hline \text { Desired operating profit } & 15 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,700,000 & \
\hline
\end{array}$$
How much is the target full product cost per unit? (Round your answer to nearest cent.)Assume all units produced are sold.

Question

Rica Company is a price-taker and uses target pricing.Refer to the following information:
$$\begin{array} { | l | l | l | } 
\hline \text { Production volume } & \$ 601,000 & \text { units per year } \
\hline \text { Market price } & \$ 34 & \text { per unit } \
\hline \text { Desired operating profit } & 15 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,700,000 & \
\hline
\end{array}$$
How much is the target full product cost per unit? (Round your answer to nearest cent.)Assume all units produced are sold.

Quizplus · Accepted Answer

To calculate the target full product cost per unit, we need to subtract the desired profit margin from the target selling price. 
Target Selling Price = $42 
Desired Profit Margin = 27% of target selling price 
= 0.27($42) = $11.34 
Target Full Product Cost per Unit = Target Selling Price - Desired Profit Margin 
= $42 - $11.34 = $30.66 
Round to nearest cent, the answer is $30.58. Therefore, the correct option is D.

Rica Company Is a Price-Taker and Uses Target Pricing How Much Is the Target Full Product Cost Per Unit