Question

After conducting a market research study, Ed Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $120. The annual target sales volume for interior doors is 20,000. Ed has target operating income of 20% of sales. What is the target cost for each interior door

Answer 1

The target cost for each interior door is $96.

What is manufacturing?

• Manufacturing is the process of creating or producing items with the aid of resources such as machinery, manpower, tools, chemicals, or biological formulations.
• It is the core of the economy's secondary sector.

What is operating cost?

• Operating costs, often known as operating costs, are the costs associated with running a company, or with running a machine, part, piece of equipment, or facility.
• They represent the cost of the resources an organization uses just to stay in business.

Solution -

Total revenue of the year (sales) = $120 × 20,000 = 24,00,000

Operating cost = 20% of sales = 4,80,000

Target cost of each door = 4,80,000 ÷ 20,000 = $24

120 - 24 = $96

Therefore, the target cost for each interior door is $96.

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