Question

Chester Company plans to introduce a new product. A market research specialist claims that 20,000 units can be sold at a $100 selling price. Assuming the company desires a profit margin of 22% of sales, what is the target cost per unit

Answer 1

Answer:

$78

Explanation:

Profit margin is the ratio of profit to sales while the profit is the difference between the sales and the cost.

As such, profit margin is the ratio of the difference between the sales and the cost to the sales.

Given that margin is 22%, it means that

22% =  profit/(20,000 * $100)

Profit = $440,000

Total cost = $2,000,000 - $440,000

= $1,560,000

Target cost per unit = $1,560,000/20,000

= $78