Galla Inc. operates in a highly competitive market where the market price for its product is $181 per unit. Galla desires a $19 profit per unit. Galla expects to sell 6,100 units. Additional information is as follows: Variable product cost per unit $ 21 Variable administrative cost per unit 16 Total fixed overhead 56,000 Total fixed administrative 29,000

Using target costing, what is the target cost?

Question

Business

Melany French

16 January, 05:32

Galla Inc. operates in a highly competitive market where the market price for its product is $181 per unit. Galla desires a $19 profit per unit. Galla expects to sell 6,100 units. Additional information is as follows: Variable product cost per unit $ 21 Variable administrative cost per unit 16 Total fixed overhead 56,000 Total fixed administrative 29,000

Using target costing, what is the target cost?

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Answers (1)

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Bogey · Answer 1

Target cost = Market price - Desired profit margin

= $181 - $19

= $162

Explanation:

Target cost is the difference between competitive market price and desired profit margin. In target costing, the market price is fixed by the market forces. The desired profit margin is deducted from the market price so as to obtain target cost.