Everly Drew Inc. manufactures widgets. The target sales price is $600 per unit. The company desires a 30% net profit margin on its products. What is the company's target full-product cost per unit using target pricing?

The target-full cost per unit  is $420 as shown below

Explanation:

The fact that the company desires to have 30% net profit margin implies that the profit element is 30% of sales price and that the target-full cost per unit using target pricing is selling price minus net profit per unit or that the target cost is 70% of target sales price

As a result, the target full-product per unit using target pricing is shown below:

Target sales price per unit                 $600

net profit margin (30%*$600)            ($180)

target-full product cost per unit         $420

Also it could be calculated as (100%-30%) * $600=$420

In other words, the two approaches give the same target-full cost per unit of widget in Everly Drew Inc

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