ch12-AFM102s2012

The market ie supply and demand determines price 2

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Unformatted text preview: was developed in recognition of Target Target these two characteristics. tthese two characteristics. these hese Target costing begins the product development process by focusing on cost reduction efforts in the product design stage of production and recognizing and responding to existing market prices. Managerial Accounting 12-51 Target Costing Handy Appliance feels there is a niche for a Handy Appliance feels there is a niche for a hand mixer with certain features. The hand mixer with certain features. The Marketing Department believes that a price of Marketing Department believes that a price of $30 would be about right and that about $30 would be about right and that about 40,000 mixers could be sold. An investment of 40,000 mixers could be sold. An investment of $2,000,000 is required to gear up for $2,000,000 is required to gear up for production. The company requires a 15% ROI production. The company requires a 15% ROI on invested funds. on invested funds. Let see how we determine the target cost. Let see how we determine the target cost. Managerial Accounting 12-52 Target Costing Projected sales ( 40,000 units × $30 ) Desired profit ( $2,000,000 × 15% ) Target cost for 40,000 mixers $ 1,200,000 300,000 $ 900,000 Target cost per mixer ( $900,000 ÷ 40,000 ) $ 22.50 Each functional area within Handy Appliance would be responsible for keeping its actual costs within the target established for that area. Managerial Accounting 12-53 End of Chapter 12 Managerial Accounting...
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