Majesty Company uses target costing to ensure that its products are profitable.
ID: 2337763 • Letter: M
Question
Majesty Company uses target costing to ensure that its products are profitable. Assume Majesty is planning to introduce a new product with the following estimates Estimated market price Annual demand Life cycle Target profit 1,100 85,000 units 5 years 30% return on sales Required 1. Compute the target cost of this product. get Cost 2. Compute the target cost if Majesty wants a 35 percent return on sales. rget Cost 3. Compute the target cost if Majesty wants a 5 percent return on sales. Target CostExplanation / Answer
Answers
>target cost per unit
>target cost per year
>target cost for 5 years
Use the data as required by you.
Working
Requirement 1
Requirement 2
Requirement 3
A
Sale price per unit
$ 1,100.00
$ 1,100.00
$ 1,100.00
B
Return on Sale price required
30%
35%
5%
C = A x B
Amount of profit per unit
$ 330.00
$ 385.00
$ 55.00
D = A - C
Target cost per unit
$ 770.00
$ 715.00
$ 1,045.00
E
NO. of units per year
85,000
85,000
85,000
F = D x E
Annual Target Cost
$ 65,450,000.00
$ 60,775,000.00
$ 88,825,000.00
G
No. of years
5
5
5
H = F x G
Total target cost for lifetime of product
$ 327,250,000.00
$ 303,875,000.00
$ 444,125,000.00
Working
Requirement 1
Requirement 2
Requirement 3
A
Sale price per unit
$ 1,100.00
$ 1,100.00
$ 1,100.00
B
Return on Sale price required
30%
35%
5%
C = A x B
Amount of profit per unit
$ 330.00
$ 385.00
$ 55.00
D = A - C
Target cost per unit
$ 770.00
$ 715.00
$ 1,045.00
E
NO. of units per year
85,000
85,000
85,000
F = D x E
Annual Target Cost
$ 65,450,000.00
$ 60,775,000.00
$ 88,825,000.00
G
No. of years
5
5
5
H = F x G
Total target cost for lifetime of product
$ 327,250,000.00
$ 303,875,000.00
$ 444,125,000.00
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