A new product, an automated crepe maker, is being introduced at Miyake Corporation. At a selling price of $73 per unit, management projects sales of 20,000 units. Launching the crepe maker as a new product would require an investment of $400,000. The desired return on investment is 17%. The target cost per crepe maker is closest to:
A)$69.60
B)$85.41
C)$81.43
D)$73.00

Question

Quizplus · Accepted Answer

The target cost is calculated by subtracting the desired return on investment from the selling price. Desired ROI = 17% of $400,000 = $68,000. Total revenue = 20,000 units * $73 = $1,460,000. Target cost = (Total revenue - Desired ROI) / 20,000 units = ($1,460,000 - $68,000) / 20,000 = $69.60.

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