assignment
asf1533
2021-09-01Chapter9PricingextraQAblank1.pptxChapter 9 Extra Q and A
EXERCISE 9.16
a. The target cost formula is: Target cost = Market price – desired profit.
In this case, the market price is $20 and the desired profit is $5 (25% × $20). Therefore, the target cost is $15 ($20 – $5).
b. Target costing is particularly helpful when a company faces a competitive market. In this case, the price is affected by supply and demand, so no company in the industry can affect price. Therefore, to earn a profit, companies must focus on controlling costs.
EXERCISE 9.18
a. 1. In this case the selling price would be $125 ($100 + [$100 × 25%]).
The problem with the $125 is that it is unlikely that Mucky Duck will be able to sell the all-body suits at that price.
Market research seems to indicate that it will sell for only $110.
2. One way that Mucky Duck might consider manufacturing the all-body swimsuit is if it has excess capacity and therefore manufacturing the suit will not affect fixed costs.
Thus, because the company can cover its variable costs it might want to sell at the $110 level.
