Tom Gilgen is considering the production of a new line of jeans. Based on prelim

Question

Tom Gilgen is considering the production of a new line of jeans. Based on preliminary market research, management has decided that each pair of jeans should be priced at $170. Furthermore, management believes that the profit margin should be 25 percent of sales revenue.

What is the target cost?

$ 62.00

$950.75

$112.00

$127.50

Bosworth Boots, Inc. is considering the production of a new line of boots. Based on preliminary market research, management has decided that each pair of boots should be priced at $225. Furthermore, management believes that the profit margin should be 30 percent of sales revenue.   

What is the target cost?

$150.75

$225.50

$260.00

$157.50

Assume that the standard cost to make one unit of product includes 15 pounds of raw materials at a price of $3 per unit. In July, 34,000 pounds of raw materials were purchased for $100,800, and 30,600 pounds of raw materials were used to produce 2,000 units of finished product.

   What is the materials quantity variance?

$2,400 (U)

$1,800 (U)

$1,200 (F)

$1,200 (U)

$ 62.00

$950.75

$112.00

$127.50

Explanation / Answer

Target Cost=Maximum amount of cost incurred on a product and still earn the required profir margin

=Selling Price- Profit Margin on selling Price

A) =$170-$42.5=$127.5

b) Target cost= $225-($225*.3)=$157.5

Material Quantity variance=Standard price*(Actual Quantity-Standard Quantity)

=3*(30600-(2000*15))

=3*600= $1800 U

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