Chapter 4, Problem 45E

Target Costing

Kearney, Inc., makes kitchen tools. Company management believes that a new model of coffee grinder would sell well at a price of $66. The company estimates unit materials costs to be $16 for the model, and overhead costs would average $18 per unit. The local wage rate for direct labor is $28 per hour. Kearney has a goal of earning an operating profit of 20 percent of manufacturing costs for each of its products.

Required

What direct labor-hour input (hours per unit) could Kearney allow and still achieve its profit goal?