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9 October, 08:38

Peacock, Inc. sells 2,100 kayaks per year at a sales price of $500 per unit. It sells in a highly competitive market and uses target pricing. The company has calculated its target full product cost at $820,000 per year. Fixed costs are $340,000 per year and cannot be reduced. What is the target variable cost per unit assuming units sold are equal to units produced?

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  1. 9 October, 12:37
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    The target variable cost per unit assuming units sold are equal to units produced is $228.571

    Explanation:

    The formula to compute the target variable cost per unit is shown below:

    = Target variable cost : number of kayaks sold

    where,

    Target variable cost = Target full product cost - Fixed costs

    = $820,000 - $340,000

    = $480,000

    And, the number of kayaks sold is 2,100

    Now put these values to the above formula

    So, the per unit would equal to

    = $480,000 : 2,100

    = $228.571
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