Comdex Inc. manufactures parts for the telecom industry. One of its products tha
ID: 2560504 • Letter: C
Question
Comdex Inc. manufactures parts for the telecom industry. One of its products that currently sells for $190 is now facing a new competitor that offers the same product for $170. The parts currently cost Comdex $160. Comdex believes it must reduce its price to $170 to remain competitive. What is the target cost of the product if Comdex desires a 20% profit on sales dollars?
What is the target cost?
Comdex Inc. manufactures parts for the telecom industry. One of its products that currently sells for $190 is now facing a new competitor that offers the same product for $170. The parts currently cost Comdex $160. Comdex believes it must reduce its price to $170 to remain competitive. What is the target cost of the product if Comdex desires a 20% profit on sales dollars?
What is the target cost?
Explanation / Answer
Desired profit
= 20% of Sales price
= 20% of $170
= $34
So, Target cost per unit
= Selling price – Desired profit
= $170 - $34
= $136 per unit