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NT Department of Health rents their facilities to professional health workers for training sessions. Duration of each session is two hours. Anticipated annual volume is 1,000 sessions. The Health Department has invested $2,410,000 in their facility and expects a return on investment (ROI) of 22%. Budgeted costs for the coming year are shown in the table below:
Per Training Session Total
Direct Materials $19
Direct Labor $410
Variable overhead $51
Fixed overhead $930,000
Variable selling and administrative expenses $38
Fixed selling and administrative expenses $510,000
Question 1: In what situation does Department of Health place the greatest focus on its target cost?
Question 2: How is the target cost determined? What is the basis formula to determine the target selling price in cost-plus pricing?
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