Quality Chairs Inc If the Profit Per Unit Is Maintained, the Target Cost

question 93

Multiple Choice

Quality Chairs Inc. (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for $550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary to regain market share and reach a targeted annual sales level of 10,000 chairs.
Cost data based on sales of 10,000 chairs:
$\begin{array}{lcc}&\text { Budgeted } & \text { Actual } \\&\text { Quantity } & \text { Quantity }\\\text { Direct materials (board feet) } & 88,000 & 79,500 & \$ 1,250,000 \\\text { Direct labor (hours) } & 71,350 & 73,775 & 875,000 \\\text { Machine hours (hours) } & 11,400 & 11,250 & 250,000 \\\text { Finishing and packing (hours) } & 6,500 & 6,400 & 125,000\end{array}$ If the profit per unit is maintained, the target cost per unit is:

• A) $105.
• B) $195.
• C) $205.
• D) $300.
• E) $250.

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Definitions:

Debtor Agreement

A contract between a debtor and creditor outlining the terms for repaying the debt owed.

Consumer Goods

Items produced for personal or household use, typically characterized by their direct consumption and satisfaction of individual needs.

Security Interest

A legal claim or lien on collateral, ensuring that a debt or obligation is secured with specific property.

Creditor

An individual or institution that lends money or extends credit to another entity, which is obliged to pay back the loan.