Cornerstone Exercise 13-21 Calculating a Target Cost Yuhu manufactures cell phones and is developing a new model with a feature (aptly named Don’t Drink and Dial) that prevents the phone from dialing an owner-defined list of phone num- bers between the hours of midnight and 6:00 A.M. The new phone model has a target price of $380. Management requires a 25% profit on new product revenues. Required: 1. Calculate the amount of desired profit. 2. Calculate the target cost.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Cornerstone Exercise 13-21 Calculating a Target Cost
Yuhu manufactures cell phones and is developing a new model with a feature (aptly named Don’t Drink and Dial) that prevents the phone from dialing an owner-defined list of phone num- bers between the hours of midnight and 6:00 A.M. The new phone model has a target price of
$380. Management requires a 25% profit on new product revenues.
Required:
1. Calculate the amount of desired profit.
2. Calculate the target cost.
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