16) Which of the following is true of target costing? A) the target cost is the
ID: 2587420 • Letter: 1
Question
16) Which of the following is true of target costing? A) the target cost is the target price minus the target operating income per unit B) the target cost includes all past costs to produce the product put from suppliers and distributors are not relevant. D) 4 key goal is to minimize value added activities of a product. 17) Sales of Granite City Products Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Granite City Products Inc. can be sold only for $420 as opposed to the current market price charged of $520 per unit. Granite City Products Inc. has decided to revise its sales price to $420. The annual sales target volume of the product after price revision is 280 units. Granite City Products Inc. wants to earn 30% on its sales amount. What is the target operating income? B) $35,280 D) $152,880 520 $82,320 117,600Explanation / Answer
Answer 16
A The target cost is the target price minus target operating income per unit
Explanation : Under target costing an entity sets target for its cost based on market price or target selling price & desired profit margin or target operating income.
Answer 17
Target Sales Amount = 280 units * $420 = $117,600.
Target Operating Income = $117,600. * 30 % = $35,280 (ie option B)
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