A company's competitor has just launched a rival product at a selling price of $38...

A company's competitor has just launched a rival product at a selling price of $38 per unit. Until now the company's selling price of $41.60 per unit has achieved a 30% mark-up on the product's unit cost. The company proposes to use a target costing approach to pricing to remain competitive.

Management has decided to match the competitor's selling price and has set a target cost to achieve a 20% return on the target price.

What is the cost gap?