Question

Home Appliances Co. wants to introduce a new digital display, laser driven iron to the market. The estimated unit sales price is $85. The required investment is $3,500,000. Unit sales are expected to be 300,000 and the minimum required rate of return on all investments is 15%. Compute the target cost per iron.

Answer 1

The target cost per iron= $83.25

Step-by-step explanation:

Profit Required = Required Investment * required rate of return

= $ 3,500,000*15%

= $ 525,000

Sales= 300000*85=$25,500,000.00

Less: profit required=$525,000.00

Cost= Sales- Profit

Cost=24,975,000.00

Per Unit Target Cost = Total Cost / Total Units

= $ 24,975,000/ 300,000

= $ 83.25