Decision and Control - Green Lights

K_L_White

Hi,

I don't know what I am doing wrong however I keep getting this question wrong - does anyone know the answer?

Beta Ltd wants to implement target costing whilst introducing a new product. All products must achieve at least 22.5% profit margin. The business has firm orders for the product at a selling price of £18 per unit. The fixed cost per unit is £5.45. The labour rate is £9 per hour and each unit takes 10 minutes of labour time to produce. Each unit uses 2.5 kilogrammes of material. What is the maximum price the business will be willing to pay per kilogramme in order to meet its profit target?

I got £7.00 is this incorrect?

Thanks

N4T

£2.80 per kg

2.5kg costs £7, you want cost per kg, therefore £7 / 2.5kg = £2.80

K_L_White

thank you very much I knew I was missing something