Ferrero Corp manufactures gourmet dips along with potato chips flavored with Cajun spices
The market price for similar chips is $7. The management of the company desires a 30% net profit margin.
The current costing data relating to this product are as follows.
Direct materials $1.00
Direct labor 1.50
Manufacturing overhead 2.75
Nonmanufacturing costs 0.75
Requirement: Determine if Ferrero's current full-product costs meet its target cost.
What will be an ideal response
Direct materials $1.00
Direct labor 1.50
Manufacturing overhead 2.75
Current total manufacturing cost $5.25
Add: nonmanufacturing costs 0.75
Current full-product cost $6.00
Target sales price $ 7.00
Less: Desired profit ($7 x 30%) (2.10 )
Target Cost $ 4.90
The target cost is $4.90, and the current full-product cost is $6.00. Therefore, Ferrero does not currently meet its target cost.
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