sir i have a doubt on this question:
AC Co has target mark-up of 25% & sells into market at $120 per unit. AC’s costs per unit are $46 for variable costs & $60 for fixed costs, with a budgeted output of 10,000 units. What is the minimum production required to close the target cost gap?
Answer: 12,000 units
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target costing
7y ago#1The target cost is 100/125 x $120 = $96 per unit
The variable costs are $46 per unit and therefore the fixed costs need to be absorbed as $50 per unit.
The budgeted total fixed costs are 10,000 x $60 = $60,000.
For the absorption rate to be only $50 per unit, the production needs to be $60,000/$50 = 12,000 units.
thank you
7y ago#3You are welcome :-)
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