Ocean Grove Vending Company has invested $980,000 in a plant to make vending machines. The company plans annual sales of 1600 vending machines at a selling price of $1100 each. The target operating income desired from the plant is $196,000 annually. What is the target cost base of each vending machine for Ocean Grove Vending Company

Target cost per machine = =$977.5

Explanation:

Target cost is derived by subtracting a desired profit margin from a competitive selling price. It represents the cost at which a company must produce in order to achieve a desired profit

For Ocean Grove Vending Company, the target cost per vending machine can be determined as follows:

Target cost per unit of machine

=  (Sales revenue - desired profit margin)/ No of units sold=

= (1600 ×  $11000) -  $196,000)/1,600

=$977.5

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