Practice questions

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November 3, 2015 at 11:06 pm #280398
gabbi08
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Dear Mr Moffat

I was doing the practice questions but I came across a for which I don t understand the answer provided. Could you please help.

Question (Target costing)

The selling price of product has been set at $300,00 per unit and at that price the company expect to sell 1000 units per year.
The company requires a return of 20% pa on investment of $1,250,000 in the product.
What is the target cost per unit?

The correct answer is $250.

Should $250 be the return on investment? 1,250,000*20%/1000?
My answer was $50 (300-250)

Could you please help?

Thanks

Gabriella
November 4, 2015 at 8:01 am #280418
John Moffat
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You are correct.

The answer does write that the target cost is $50, but the wrong letter has been typed by mistake. I will have it corrected. Sorry.
November 4, 2015 at 8:31 am #280423
gabbi08
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Dear Mr Moffat,

thanks a lot for your response
Have a nice day ahead

Best Regards

Gabriella
November 4, 2015 at 1:29 pm #280457
John Moffat
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You too 🙂
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