Question

A company operates in a competitive marketplace. They look to the market to determine their selling price. It looks like the market will bear a price of $227. The company has a goal of earning 10% return on sales on each unit. What would their target cost be

Answer 1

The target cost to the company is equivalent to $ 206.36 where the selling price as per market is $227 at a profit of 10%.

What is the meaning of target cost?

Target cost is the amount left after deducting the profit from the selling price. It is a cost of a product on which the seller adds their margin.

Given values:

Selling price: $227

Rate of return: 10%

Computation of target cost:

$\rm\ Target \rm\ Cost=\frac{\rm\ Selling \rm\ price}{1+\rm\ rate \rm\ of \rm\ return} \\\rm\ Target \rm\ Cost=\frac{\rm\ \ 227 }{1+10\%} \\\\\rm\ Target \rm\ Cost=\frac{\rm\ \ 227}{1.10} \\\\\rm\ Target \rm\ Cost=\ 206.36$

Therefore, the company gets the target cost of $206.36 if it wants to earn 10% at a selling price of $227.

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