Question

in g Hulston Appliances Co. wants to introduce a new digital display, laser driven iron to the market. The estimated unit sales price is $44.00. The required investment is $88,000. Unit sales are expected to be 8,800 and the minimum required rate of return on all investments is 10.00%. Compute the target cost per iron.

Answer 1

Answer: $43

Explanation:

Cost is Revenue less required return in this scenario.

The required return on investment is 10% of the Investment which is,

= 10% * 88,000

= $8,800

Revenue is;

= $44 * 8,800 pieces

= $387,200

Total Cost = 387,200 - 8,800

= $378,400

Cost per unit = 378,400/8,800 units

= $43

For a required return of $8,800, units need to cost no more than $43.