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Decision Point: Pricing Your Writing Desk Fir-Niche's new product development team is developing an ornate writing desk. Before the prototype is produced, you have been asked to engage in target costing to recommend the target cost of materials per unit. This is part of an effort to make the writing desk of the best quality materials that the target market will be willing to pay, while still allowing Fir-Niche to make a profit. Conner emails you a report that contains the following information to help you make your decision
Fixed costs - 250 000$
Projected units sold in one year - 1000
Average price target market will pay - 550$
What cost of material per unit (variable cost) do you recommend for the ornate writing desk?
1. 100$/per unit
2. 200$/per unit
3. 300$/per unit

Respuesta :

Answer:

1

Explanation:

1

200$/unit cost of material per unit (variable cost) is recommended for the ornate writing desk.

How to calculate which cost of material per unit (variable cost) is recommended for the ornate writing desk?

Given:

Fixed Cost = $25000

Units sold in 1 year = 1000

Average Price = $550

Total Revenue (TR) = Price x Quantity

$550 x 1000 = 550,000

Total Cost (TC) = Fixed Cost + Per unit Variable Cost (VC) x Quantity

= $250,000 + 1000 x VC

Profit = TR - TC

= 550,000 - (250,000 + 1000VC)

= 300,000 - 1000VC

Now,

  1. When VC = $200
  2. Profit = 300,000 - 1000*(200)
  3. = 300,000 - 200,000
  4. = 100,000
  5. When VC = $100
  6. profit = 300,000 - 1000*(100)
  7. = 300,000 - 100,000 = 200,000
  8. When VC = $300
  9. Profit = 300,000 - 1000*(300)
  10. = 300,000 - 300,000 = 0

Now, $300 can not be the variable cost as it causes profit to be break-even leading to no profit or loss.

Therefore, 200$/unit (option 2) cost of material per unit (variable cost) is recommended for the ornate writing desk as at this choice there are more profits without compromising on the quality.

To learn more about variable cost, refer

https://brainly.com/question/23421602

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