Answer:
The target cost per unit is $3.44 per unit for the filter
Explanation:
Computing the target cost per unit of the filter as:
Computing revenue as:
Revenue = Maximum price per unit × Selling units
where
Maximum price per unit is $4
Selling units are 1,000,000
So,
Revenue = $4 × 1,000,000
Revenue = $4,000,000
The target profit is as:
Target Profit = Minimum rate of return × Revenue
Target Profit = 14% × $4,000,000
Target Profit = $560,000
Now, computing the target profit per unit as:
Target profit per unit = 14% of $4
Target profit per unit = 14% × $4
Target profit per unit = $0.56
Computing the Target cost as:
Target cost = Maximum price - Target profit per unit
Target cost = $4 - $0.56
Target cost = $3.44 per unit
