Fantabulous Products sells 2,200 kayaks per year at a price of $470 per unit. Fantabulous sells in a highly competitive market and uses target pricing. The company has $1,000,000 of assets, and the shareholders wish to make a profit of 18% on assets. Assume all products produced are sold. What is the target full product cost

Target cost per unit = $388.18

Explanation:

Target costing is useful when a company wishes to make a certain desired level of profit by selling a product in a market where the price is given.

Target cost is calculated by subtracting desired profit margin from competitive selling price.

Total target cost = (480*2200) - (18% * 1,000,000)

= 854,000

Target cost per unit = (($470 * 2,200) - (18% * 1,000,000)) / 2,200

Target cost per unit = $388.18