Tom Gilgen is considering the production of a new line of jeans. Based on prelim
ID: 2499598 • Letter: T
Question
Tom Gilgen is considering the production of a new line of jeans. Based on preliminary market research, management has decided that each pair of jeans should be priced at $170. Furthermore, management believes that the profit margin should be 25 percent of sales revenue.
What is the target cost?
$ 62.00
$950.75
$112.00
$127.50
Bosworth Boots, Inc. is considering the production of a new line of boots. Based on preliminary market research, management has decided that each pair of boots should be priced at $225. Furthermore, management believes that the profit margin should be 30 percent of sales revenue.
What is the target cost?
$150.75
$225.50
$260.00
$157.50
Assume that the standard cost to make one unit of product includes 15 pounds of raw materials at a price of $3 per unit. In July, 34,000 pounds of raw materials were purchased for $100,800, and 30,600 pounds of raw materials were used to produce 2,000 units of finished product.
What is the materials quantity variance?
$2,400 (U)
$1,800 (U)
$1,200 (F)
$1,200 (U)
$ 62.00
$950.75
$112.00
$127.50
Explanation / Answer
Target Cost=Maximum amount of cost incurred on a product and still earn the required profir margin
=Selling Price- Profit Margin on selling Price
A) =$170-$42.5=$127.5
b) Target cost= $225-($225*.3)=$157.5
Material Quantity variance=Standard price*(Actual Quantity-Standard Quantity)
=3*(30600-(2000*15))
=3*600= $1800 U