The management of Fanton Corporation is considering introducing a new product-a compact lawn blower. At a selling price of $38 per unit, management projects sales of 60,000 units. The lawn blower would require an investment of $500,000. The desired return on investment is 18%.
-The target cost per lawn blower is closest to:
A) $38.00
B) $43.07
C) $44.84
D) $36.50

Question

Quizplus · Accepted Answer

The target cost per unit is calculated by subtracting the desired return on investment from the selling price. The desired return is 18% of the $500,000 investment, which is $90,000. Dividing this by the projected sales of 60,000 units gives a return of $1.50 per unit. Subtracting this from the selling price of $38 gives a target cost of $36.50 per unit.

The Management of Fanton Corporation Is Considering Introducing a New