A new product, an automated crepe maker, is being introduced at Boorman Corporation. At a selling price of $72 per unit, management projects sales of 20,000 units. Launching the crepe maker as a new product would require an investment of $700,000. The desired return on investment is 14%. The target cost per crepe maker is closest to:
A) $72.00
B) $82.08
C) $76.49
D) $67.10

Question

Quizplus · Accepted Answer

The target cost is calculated by subtracting the desired return on investment from the total sales revenue and then dividing by the number of units. Total sales revenue is $72 * 20,000 = $1,440,000. Desired return is 14% of $700,000 = $98,000. Target cost = ($1,440,000 - $98,000) / 20,000 = $67.10.

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