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Que – Projected lifetime sales volume 50,000 units
Target selling price per unit $200
Target profit margin 35%need to calculate the target cost ?
Answer suggest that 200 – (200*35%) = 130
however if the profit margin is on sales will we not calculate it like the below:
200 – (200*35/135)No.
The profit is 35% of sales and so is 35% x 200 = $70.
Therefore the target cost is 200 – 70 = $130.
What you want to do would only be correct if the question had said that the profit was 35% of cost.
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