The management of Rademacher Corporation is considering introducing a new product--a compact lawn blower. At a selling price of $24 per unit, management projects sales of 30,000 units. The lawn blower would require an investment of $200,000. The desired return on investment is 12%.The target cost per lawn blower is closest to:
A) $24.00
B) $23.20
C) $26.88
D) $25.98

Question

Quizplus · Accepted Answer

To calculate the target cost per lawn blower, we need to first determine the total desired return on investment.

Desired return on investment = Investment x Desired return rate 
= $200,000 x 12% 
= $24,000

Next, we need to subtract the desired return on investment from the projected sales revenue to get the target total cost.

Target total cost = Projected sales revenue - Desired return on investment 
= (30,000 units x $24 per unit) - $24,000 
= $720,000 - $24,000 
= $696,000

Finally, we can divide the target total cost by the projected number of units to get the target cost per lawn blower.

Target cost per lawn blower = Target total cost / Projected number of units 
= $696,000 / 30,000 
= $23.20

Therefore, the target cost per lawn blower is closest to $23.20, option B.

The Management of Rademacher Corporation Is Considering Introducing a New