[Rashid04]

America. Test marketing has revealed the following demand curve for the product:
P = 600 – 0.005Q
The estimated market for the product is 500,000 units per year. The company would like
to capture 10% of this market.
The company has established a cost card based on 50,000 units of sales each year:
TZS.
Direct materials 100
Direct labour 30
Fixed overhead 70
Total cost 200
The company wishes to achieve a target profit of TZS. 10,000,000 for sales of this product
per year.
Required:
a) What price will the company have to charge to capture its required market share
and what is the target unit cost to achieve its target profit?
b) What is the size of the target cost gap

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