Toyota Motor Corporation (TM) uses target costing. Assume that Toyota marketing
ID: 2558909 • Letter: T
Question
Toyota Motor Corporation (TM) uses target costing. Assume that Toyota marketing personnel estimate that the competitive, average selling price for the Rav4 in the upcoming model year will need to be $25,700. Assume further that the Rav4’s total unit cost for the upcoming model year is estimated to be $20,600 and that Toyota requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost).
a. What price will Toyota establish for the Rav4 for the upcoming model year?
Explanation / Answer
1
Calculation of price for upcoming model
Particulars
Amount
Total unit cost
$20,600
Profit margin 25% on cost (20,600*25%)
$5,150
Total selling price
$25,750
What price will Toyota establish for the Rav4 for the upcoming model year?
ans
Selling price = $25,750
1
Calculation of price for upcoming model
Particulars
Amount
Total unit cost
$20,600
Profit margin 25% on cost (20,600*25%)
$5,150
Total selling price
$25,750
What price will Toyota establish for the Rav4 for the upcoming model year?
ans
Selling price = $25,750
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