Target Costing
Terracotta, Inc., makes toy soldiers. Company management believes that a new model would sell well at a price of $65. The company estimates unit materials costs to be $16 for the model, and overhead costs would average $20 per unit. The local wage rate for direct labor is $28 per hour. Terracotta has a goal of earning an operating profit t of 30 percent of manufacturing costs for each of its products.
Required
What direct labor hour input (hours per unit) could Terracotta allow and still achieve its profi t goal?