Question - Target Costing
Oregon Equipment Company wants to develop a new log-splitting machine for rural homeowners. Market research has determined that the company could sell 5,000 log-splitting machines per year at a retail price of $600 each. An independent catalog company would handle sales for an annual fee of $3,000 plus $50 per unit sold. The cost of the raw materials required to produce the log-splitting machines amounts to $60 per unit.
If company management desires a return equal to 10 percent of the final selling price, what is the target conversion and administrative cost per unit? Round answer to the nearest cent.