How Do Managers Calculate a Target Cost for the Selling

question 79

Multiple Choice

How do managers calculate a target cost for the selling price of a product?

• A)Add net sales to gross sales.
• B)Subtract net sales from the cost.
• C)Subtract the operating cost per unit of the product.
• D)Subtract the operating income per unit of target product.
• E)Add the net sales to the operating income per unit and subtract costs.

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Definitions:

Marginal Revenue

The additional income earned from selling one more unit of a product or service.

Average Total Cost

The total cost of production divided by the total quantity produced, representing the cost per unit of output.

Profit-maximizing

A strategy or behavior where a firm aims to achieve the highest possible profit from its operations, considering costs, revenue, and market conditions.

Zero Economic Profit

A scenario where a firm's total revenues are exactly equal to its total costs, indicating no abnormal profit beyond the normal rate of return.