Pedrotti Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $29 per unit, management projects sales of 40,000 units. The new product would require an investment of $400,000. The desired return on investment is 16%. The target cost per unit is closest to: (Do not round intermediate calculations.) a. $36.25b. $2.90c. $27.40d. $29.00

= $27.4

Explanation:

First, what is the formula for target cost = The Selling Price per unit - the Profit Margin Per unit

Selling price per Unit = $29

The Profit Margin = 16% desired return on investment

The Investment Itself = $400,000

Therefore, we calculate the profit margin as follows

= 16% x $400,000 = $64,000

Since the number of Units of sales = 40,000

We calculate the Profit Margin Per Unit = $64,000 / 40,000

= $1.6

Finally, what is the target cost per unt

First, what is the formula for target cost = The Selling Price per unit - the Profit Margin Per unit

= $29 - $1.6

= $27.4