The operation costs of a product produced by ABC Ltd is Rs. 53. Presently, the company produces only 6,000 units p.a. to sell at Rs. 55 per unit due to hard competition in the market. But with existing facilities, production can be increased to 10,000 units if additional production can be sold in the market. The company accordingly introduced target costing based on market research, new design for the product and changes in the process so that costs are brought down substantially and market share can be increased. The estimates for the next year are:

Target selling price Rs. 50 per unit

Target profit margin 10% on sales

Target volume 9,000 units

Required:

(a) Calculate target costs per unit and target costs for the expected volume.

(b) Compare existing profit with target profit.