After conducting a market research study, Stewart Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $120. The annual target sales volume for interior doors is 20,000. Stewart has a 20% expected return on sales target.

1. What is the target cost for each interior door?

Question

Business

Precious Bautista

1 February, 23:58

After conducting a market research study, Stewart Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $120. The annual target sales volume for interior doors is 20,000. Stewart has a 20% expected return on sales target.

1. What is the target cost for each interior door?

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Answers (1)

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Barbara Clayton · Answer 1

The target cost for each interior door $96 per door.

Explanation:

Target Price = $120

Target Sales volume = 20,000

Rate of return = 20%

Total Target sales = 20,000 x $120 = 2,400,000

Total return = 2,400,000 x 20% = 480,000

Total Cost = Total Target sales - Total Target return

Total Cost = 2,400,000 - 480,000 = 1,920,000

Target cost per door = 1,920,000 / 20,000 = $96 per door