Asked by Christina Ercolani on Jun 01, 2024
Verified
If the target selling price is $120 and the target profit margin is a 40 per cent mark-up on cost, what is the target cost?
A) $48
B) $72
C) $85.70
D) $34.30
Target Selling Price
The target selling price is the price at which a company aims to sell its product or service, taking into account production costs, desired profit margins, and market conditions.
Profit Margin
A financial metric expressing the percentage of revenue that remains as profit after all expenses are deducted from gross sales.
Target Cost
The desired cost of producing a product, determined by subtracting a desired profit margin from a competitive market price, aimed at ensuring market competitiveness.
- Acquire knowledge on the procedure for determining target costs and prices aligned with market expectations.
Verified Answer
Let C be the cost. Then the selling price can be expressed as:
Selling Price = Cost + 40% of Cost
$120 = C + 0.4C
$120 = 1.4C
C = $85.70
Therefore, the target cost is $85.70.
Learning Objectives
- Acquire knowledge on the procedure for determining target costs and prices aligned with market expectations.
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