Hyacinth Company is designing an all-in-one grill and cooler aimed at sports fans. The company believes that the product can be sold for $250. Hyacinth requires a 20% profit on new products. What is the target cost of the all-in-one grill and cooler?

a. $122

b. $251

c. $145

d. $200

e. $180

Answer: d. $200

Explanation:

Hyacinth Company believes they can sell the new Grill and Cooler for $250. They however require a profit rate of 20%.

So the question is how much cost would be ideal.

We can denote that as (1 - 20%)

Calculating that would look somewhat like,

x = 250 (1 - 0.2)

= $200

$200 is the Target cost.

x =

d. $200

Explanation:

The cost which is calculated by the firm using competitive market price after deducting desired markup. This approach is used to calculate best cost that a company should adopt to be competitive in the market.

As we know the 20% markup is calculated using Selling price which ius 100%. target cost is the net of Selling price and profit

Target Cost = Selling Price - Profit = $250 - ($250 x 20%) = $250 - $50 = $200