Illustration 5 – Targeting costs
Katy Inc, a toy manufacturer, is about to launch a new type of bicycle on which it requires a Return on Investment of 30%.
Buildings and equipment needed for production are to cost $5,000,000.
Expected sales levels are $40,000 toys pa at a selling price of $67.50 per item costs are currently estimated to be $32 per unit.
Required:
What is the target cost for annual production?
Solution
Working$
Revenue(67.50×40,000)2,700,00
Target costs(balancing figure)(1,200,000)
Target return(30%×5,000,000)1,500,000
