Question

EagleEye Company, a manufacturer of digital cameras, is considering entry into the digital binocular market. EagleEye Company currently does not produce binoculars of any style, so this venture would require a careful analysis of relevant manufacturing costs to correctly assess its ability to compete. The market price for this binocular style is well established at $136 per unit. EagleEye has enough square footage in its plant to accommodate the new production line, although several pieces of new equipment would be required; their estimated cost is $4,800,000. EagleEye requires a minimum ROl of 15% on any product line investment and estimates that if it enters this market with its digital binocular product at the prevalling market price, It is confident of its ability to sell 22,000 units each year.

Required:
Identify the costs that EagleEye Company would consider for decision of entering the digital binocular market

Answer 1

EagleEye Company

The costs that EagleEye Company would consider for the decision of entering the digital binocular market are:

1. Direct cost of materials for production

2. Direct cost of labor

3. Overhead costs, including the annual cost of the new equipment

4. Opportunity costs, including the expected minimum ROI of 15%.

Step-by-step explanation:

a) Data and Calculations:

Estimated cost of new equipment = $4,800,000

Minimum required ROI = 15%

Established market price per unit = $136

Expected annual sales units = 22,000

Total expected sales revenue for the year = $2,992,000