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JKCPA
JKCPA, CPA
Category: Finance
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Experience:  Bachelors degree and CPA with Accounting experience.
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The product design team at New Time Products is in the process

Customer Question

The product design team at New Time Products is in the process of designing a new clock using target costing. Product features in comparison to competing prodcuts suggest a price of $30 per unit. The company requires a profit of 30 percent of selling price.

A. What is the target cost per clock?
b. Suppose it appears that the clocks cannot be manufactured for the target cost.What are some of the options that the company should consider?
Submitted: 5 years ago.
Category: Finance
Expert:  JKCPA replied 5 years ago.
Hello,

Thanks for your question.

a) The target cost is Sales price x (100% - profit %) = $30 x 70% = $21

b) The company should analyze each cost to determine if any costs can be reduced such as improving labor efficiency or perhaps using less expensive materials. If this does not help, then they may need to redesign the clock to reduce costs.

Hope this helps,
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