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I didn’t understand how they got 12000 units…
I know how to find target cost that is 96Given that the mark up is 25% on cost, the target cost must be 100/125 x $120 = $96.
The variable costs are $46 and therefore to achieve target cost the fixed costs need to be reduced to $50 per unit.
The total fixed costs are 10,000 x $60 = $600,000 and this total will not change with the level of production.
Therefore to achieve a fixed cost of $50 per unit they need to produce 600,000 / 50 = 12,000 units.
Fixed cost of 50 we get by taking 96-46 rgt…
N why do we reduce the fixed cost
Okay understood thanks
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