A new product, an automated crepe maker, is being introduced at Knutt Corporation. At a selling price of $38 per unit, management projects sales of 78,000 units. Launching the crepe maker as a new product would require an investment of $260,000. The desired return on investment is 15%. The target cost per crepe maker is closest to: (Round your answer to 2 decimal places.)
A) $37.50
B) $45.42
C) $45.80
D) $38.00

Question

Quizplus · Accepted Answer

The target cost per crepe maker can be calculated by first determining the total desired profit, which is the investment multiplied by the desired return on investment (ROI). Then, subtract the total desired profit from the total revenue to find the total cost allowed. Finally, divide the total cost allowed by the number of units to find the target cost per unit.Total revenue = 78,000 units * $38/unit = $2,964,000Desired profit = $260,000 * 15% = $39,000Total cost allowed = Total revenue - Desired profit = $2,964,000 - $39,000 = $2,925,000Target cost per unit = Total cost allowed / Number of units = $2,925,000 / 78,000 units = $37.50

A New Product, an Automated Crepe Maker, Is Being Introduced