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22 September, 21:45

Pedrotti Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $29 per unit, management projects sales of 40,000 units. The new product would require an investment of $400,000. The desired return on investment is 16%. The target cost per unit is closest to: (Do not round intermediate calculations.) a. $36.25b. $2.90c. $27.40d. $29.00

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  1. 23 September, 01:32
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    = $27.4

    Explanation:

    First, what is the formula for target cost = The Selling Price per unit - the Profit Margin Per unit

    Selling price per Unit = $29

    The Profit Margin = 16% desired return on investment

    The Investment Itself = $400,000

    Therefore, we calculate the profit margin as follows

    = 16% x $400,000 = $64,000

    Since the number of Units of sales = 40,000

    We calculate the Profit Margin Per Unit = $64,000 / 40,000

    = $1.6

    Finally, what is the target cost per unt

    First, what is the formula for target cost = The Selling Price per unit - the Profit Margin Per unit

    = $29 - $1.6

    = $27.4
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