A new product, an automated crepe maker, is being introduced at Knutt Corporation. At a selling price of $59 per unit, management projects sales of 70,000 units. Launching the crepe maker as a new product would require an investment of $500,000. The desired return on investment is 12%. The target cost per crepe maker is closest to:
A) $59.00
B) $66.08
C) $58.14
D) $65.12

Question

Quizplus · Accepted Answer

To calculate the target cost per crepe maker, we need to first determine the desired return on the investment.

12% of the investment of $500,000 is:

$500,000 x 12% = $60,000

So, Knutt Corporation wants to earn $60,000 in profit from the sale of 70,000 crepe makers.

Revenue from sales = selling price x units sold

Revenue from sales = $59 x 70,000

Revenue from sales = $4,130,000

Target cost per crepe maker = (Revenue from sales - Desired profit) / Units sold

Target cost per crepe maker = ($4,130,000 - $60,000) / 70,000

Target cost per crepe maker = $4,070,000 / 70,000

Target cost per crepe maker = $58.14

Therefore, the closest target cost per crepe maker is $58.14, which is option C.

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