Toyota Motor Corporation uses target costing. Assume that Toyota marketing personnel estimate that the competitive selling price for the Camry in the upcoming model year will need to be $27,000. Assume further that the Camry's total unit cost for the upcoming model year is estimated to be $22,500 and that Toyota requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost). a. What price will Toyota establish for the Camry for the upcoming model year?

Question

Andrew Fletcher

Business

5 December, 04:12

Toyota Motor Corporation uses target costing. Assume that Toyota marketing personnel estimate that the competitive selling price for the Camry in the upcoming model year will need to be $27,000. Assume further that the Camry's total unit cost for the upcoming model year is estimated to be $22,500 and that Toyota requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost). a. What price will Toyota establish for the Camry for the upcoming model year?

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Natalia Mckenzie · Answer 1

Target price will be $27,000.

Explanation:

Computation of the given data are as follows:

As, Target price is already given = $27,000

So, Toyota has to change its Target cost.

So, Target cost = Target price - profit margin

Where, Profit margin = 20%

So, Target cost = $27,000 - ($27,000 * 20%)

= $27,000 - $5,400

= $21,600

So, The target cost should be $21,600 and target price will be $27,000.