19-3TI - Horngren'S Financial And Managerial Accounting

Question

Goodwin, Inc. manufactures children’s sandals. Similar sandals manufactured by competitors sell for $12.50 per pair. Goodwin desires a 20% net profit margin. What is Goodwin’s target cost?

Step-by-Step Solution

Answer

Target Cost: $10

Target cost

Target cost is the maximum production cost that a business needs to incur so that the targeted sales price can be charged.

Target cost can also be defined as the difference between the target sales price and desired profit.

Computation of target cost

Target Sales Price: $12.50

Desired Net profit margin: 20%

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