Question

Majesty Company uses target costing to ensure that its products are profitable. Assume Majesty is planning to introduce a new product with the following estimates:    

Estimated market price	$	1,400
Annual demand		91,000	units
Life cycle		4	years
Target profit		28	% return on sales

Required:

1. Compute the target cost of this product.

2. Compute the target cost if Majesty wants a 40 percent return on sales.

3. Compute the target cost if Majesty wants a 14 percent return on sales.\

1.

Compute the target cost of this product.

	Target Cost

2.

Compute the target cost if Majesty wants a 40 percent return on sales.

	Target Cost

3.

Compute the target cost if Majesty wants a 14 percent return on sales.

	Target Cost

Answer 1

1) Target cost is = Estimated market price - Desired profit Desired profit is = Market price * Target profit % Desired profit is = (1400*28%) Desired profit is - $ 392 Target cost is = (1400-392) Target cost is = $ 1,008/. 2) Target profit is = Estimated market price * 40% Target profit is = (1400*40%) Target profit is = $ 560/. Target cost is = 1400-560 Target cost is = $ 840). 3) Target profit is = Estimated market price * 14% Target profit is = (1400*14%) Target profit is = 5 196 Target cost is = 1400-196 Target cost is $ 1,204/.