Which information is needed to compute target return price?

Which information is needed to compute target return price?

• A. Fixed costs, expected unit sales, and variable costs
• B. Market share, price elasticity, and demand forecast
• C. Fixed costs only
• D. Variable costs only

Answer: (A)

To compute a target return price, you need to connect the cost structure with how many units you expect to sell, so the revenue covers all costs and delivers the desired return. Fixed costs must be recovered, and variable costs per unit add to the cost of each unit. The expected unit sales tell you how many units you’ll be selling, which determines how much total revenue is required to achieve the target return. Put together, the price per unit is set so that: revenue from expected sales covers fixed costs plus all variable costs and provides the planned profit. The other inputs don’t provide this full cost-and-volume foundation. Market share, price elasticity, and demand forecast relate to how demand might respond but don’t directly supply the cost structure needed to calculate the target return price. Fixed costs only omits the per-unit production cost, while variable costs only omits the overhead that must be recovered.

To compute a target return price, you need to connect the cost structure with how many units you expect to sell, so the revenue covers all costs and delivers the desired return. Fixed costs must be recovered, and variable costs per unit add to the cost of each unit. The expected unit sales tell you how many units you’ll be selling, which determines how much total revenue is required to achieve the target return. Put together, the price per unit is set so that: revenue from expected sales covers fixed costs plus all variable costs and provides the planned profit.

The other inputs don’t provide this full cost-and-volume foundation. Market share, price elasticity, and demand forecast relate to how demand might respond but don’t directly supply the cost structure needed to calculate the target return price. Fixed costs only omits the per-unit production cost, while variable costs only omits the overhead that must be recovered.