Question

Peacock, Inc. sells 2,100 kayaks per year at a sales price of $500 per unit. It sells in a highly competitive market and uses target pricing. The company has calculated its target full product cost at $820,000 per year. Fixed costs are $340,000 per year and cannot be reduced. What is the target variable cost per unit assuming units sold are equal to units produced?

Answer 1

The target variable cost per unit assuming units sold are equal to units produced is $228.571

Step-by-step explanation:

The formula to compute the target variable cost per unit is shown below:

= Target variable cost ÷ number of kayaks sold

where,

Target variable cost = Target full product cost - Fixed costs

= $820,000 - $340,000

= $480,000

And, the number of kayaks sold is 2,100

Now put these values to the above formula

So, the per unit would equal to

= $480,000 ÷ 2,100

= $228.571