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Basic Motor Corporation uses target costing. Assume that Basic marketing personnel estimate that the competitive selling price for the QuikCar in the upcoming model year will need to be $24,300. Assume further that the QuikCar's total unit cost for the upcoming model year is estimated to be $19,000 and that Basic requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost).

Required:
What price will Basic establish for the QuikCar for the upcoming model year?

Answer :

ANTHOUGOGO

Answer:

Basic Motor Corporation

The price that Basic will establish for the QuikCar for the upcoming model year will be:

= $24,000.

Explanation:

a) Data and Calculations:

Estimated selling price for the QuikCar in upcoming year = $24,300

Estimated total unit cost for the QuikCar in upcoming year = $19,000

Required profit margin on selling price = 20%

Required markup on total cost = 25%

The price that Basic will establish for the QuikCar for the upcoming model year will be:

= $24,000.

Profit margin = $4,860 ($24,300 * 0.2)

Markup on total cost = $4,750 ($19,000 * 0.25)

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