Suppose you have just started a business to manufacture your latest invention, the Glammaglob gadget. You estimate that after a few years on the market these gadgets will sell for about $250. This estimate takes account of the introduction of similar devices by your competitors. Furthermore, let's say you want to make a profit of $50 on each gadget sold.
Required:
1. What is the target cost for the Glammaglob gadget?
2. What is the target profit?
3. What is the target price?
4. Suppose your engineers and management accountants conclude that you design of the Glammaglob gadget will result in a unit cost of $230. How can you use the concept of target costing to help achieve your objective?