Question

Flyer Company sells a product in a competitive marketplace. Market analysis indicates that its product would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Flyer's current full cost for the product is $44 per unit.

A. What is the desired profit per unit?
B. In order to meet the new target cost, how much will the company have to cut costs per unit, if any?
C. What is the target cost of the company's product?
D. If the company cannot cut costs any lower than they already are, what would the profit margin on sales be to meet the market selling price?

Answer 1

Market selling price = $48 per unit

Cost price = $44

Profit = 48 - 44 = $4

Profit margin = profit/selling price x 100 4/48 x 100 = 8.333%

To obtain a 12.5% profit margin the costs would have to be cut to $42 or the selling price would have to rise to $50.29

Profit margin = profit/selling price

= (selling price - cost price)/(selling price)

12.5% = 6 / 48

= 48 - 42 / 48

= 0.125 12.5% =

6.29 / 50.29 = 50.29 - 44 / 50.29 = 0.12507