XYZ Company produces wallets. They are presented with the opportunity to enter a

Question

XYZ Company produces wallets. They are presented with the opportunity to enter a “high-end” wallet market. This is an extremely competitive market, making XYZ a price taker. The market price for a high-end wallet is currently $150. XYZ Company expects to sell 10,000 wallets at that price. Assuming that XYZ desires a total profit of $1,000,000 what must the target cost per wallet be (hint: This question is setup a little different from other target cost problems that we have done, but treat it the same. You know how much total revenue that you expect to bring in, as well as your desired profit).

Explanation / Answer

Here Fixed Cost is not given , so I assumed to be zero

Let Target cost per wallet be x

So, Equation would be

So, 10000*(150-x) = 1000000

150-x = 100

x = $50

So, target cost per wallet is $50

Revenue = 10000*150 = $1500000

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