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16 April, 11:53

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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  1. 16 April, 12:50
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    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
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