Target Costing Oregon Equipment Company wants to develop a new log-splitting mac

Question

Target Costing
Oregon Equipment Company wants to develop a new log-splitting machine for rural homeowners. Market research has determined that the company could sell 5,000 log-splitting machines per year at a retail price of $700 each. An independent catalog company would handle sales for an annual fee of $3,000 plus $40 per unit sold. The cost of the raw materials required to produce the log-splitting machines amounts to $90 per unit.

If company management desires a return equal to 10 percent of the final selling price, what is the target conversion and administrative cost per unit? Round answer to the nearest cent. $Answer

Explanation / Answer

Statement showing computations Particulars Amount Sale Price per unit              700.00 Less Cost of raw materials                90.00 Less: Independent Catalog Fee                40.00 Less Annual Fee = 3,000/5,000                   0.60 Less Return @10% of 700                70.00 Target conversion and administrative cost per unit = 700 - 90 - 40 - .60 - 70              499.40

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