Timax Company,a manufacturer of moderately priced time pieces,would like to introduce a new electronic watch into the market.To compete effectively,the watch could not be priced at more than $50.The company requires a return on investment of 25% on all new products.The plan is to produce and sell 20,000 watches each year.This would require a $500,000 investment.What would be the target cost per watch?
A) $25.00.
B) $39.00.
C) $43.75.
D) $64.00.

Question

Quizplus · Accepted Answer

The target cost per watch can be calculated by first determining the desired return on investment (ROI), which is 25% of the $500,000 investment, equaling $125,000. Adding this to the investment gives the total required revenue ($625,000). Dividing this by the number of watches (20,000) gives a target cost per watch of $31.25. However, to achieve a selling price of no more than $50 while ensuring a 25% ROI, the calculation should focus on the cost structure and pricing strategy that meets these criteria, not directly on the cost per watch from the investment perspective alone. The mistake in the explanation indicates a misunderstanding of the calculation process. The correct approach to find the target cost per watch involves considering the selling price and the required profit margin.

Timax Company,a Manufacturer of Moderately Priced Time Pieces,would Like to Introduce