#25 Hirohito Limited Partners would like to use target costing for a new product

Question

#25

Hirohito Limited Partners would like to use target costing for a new product it is considering introducing. At a selling price of $25 per unit, management projects sales of 70,000 units. The new product would require an investment of $400,000. The desired return on investment is 20%.

The desired profit according to the target costing calculations is:

a. $350,000

b. $1,750,000

c. $80,000

d. $2,000,000

Hirohito Limited Partners would like to use target costing for a new product it is considering introducing. At a selling price of $25 per unit, management projects sales of 70,000 units. The new product would require an investment of $400,000. The desired return on investment is 20%.

Explanation / Answer

Calculation of desired profit according to the target costing calculations:

Desired profit = Investment * Desired return on investment

=$400000* 20%

= $80000

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