If Summit Products requires a 25% return on sales to undertake production, what is the target cost for the new widget?
A) $65.00.
B) $67.50.
C) $80.
D) Some other amount.

Question

Quizplus · Accepted Answer

Since Summit Products requires a 25% return on sales and the selling price is $90, the target cost can be calculated as follows:
Target Cost = Selling Price - Desired Profit
Desired Profit = 25% of Selling Price
Desired Profit = 0.25 x $90 = $22.50
Target Cost = $90 - $22.50 = $67.50
Therefore, the target cost for the new widget is $67.50. Hence, the correct answer is B.

If Summit Products Requires a 25% Return on Sales to Undertake