Question

Summit Products, Inc. is interested in producing and selling an improved widget. Market research indicates that customers would be willing to pay $90 for such a widget and that 50,000 units could be sold each year at this price. The current cost to produce the widget is estimated to be $65. Summit has learned that a competitor plans to introduce a similar widget at a price of $80. If Summit requires a 25% return on sales, what is the target cost for the new widget? Group of answer choices

Answer 1

$60

Step-by-step explanation:

For computing the target cost, first we have to determine the profit per unit which is shown below:

= Selling price × return on sales percentage

= $80 × 25%

= $20

Now the target cost would be

= Selling price per unit - profit per unit

= $80 - $20

= $60

All other information which is given is not relevant. Hence, ignored it