Pueblo Products Is a Price-Taker and Uses Target Pricing -
Actual Costs Are Currently Higher Than Target Full Cost

Pueblo Products is a price-taker and uses target pricing. Pueblo has just done an analysis of their revenues, costs and desired profits, and has calculated its target full cost. Please refer to the following information:
$$\begin{array} { | l | r | r | } \hline \text { Target full cost } & \$ 400,000 & \text { Per year } \\\hline \text { Artual fixed cost } & \$ 160,000 & \text { Per year } \\\hline \text { Artual variable cost } & \$ 1.00 & \text { Per unit } \\\hline \text { Praduction volume } & 250,000 & \text { Units per year } \\\hline\end{array}$$
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Actual costs are currently higher than target full cost. Assuming that fixed costs are predominantly related to depreciation expense and CANNOT be reduced, how much is the target variable cost per unit?

A) $0.92
B) $1.04
C) $1.00
D) $0.96

Correct Answer:

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