Question

Eckert Company is involved in producing and selling high-end golf equipment. The company has recently been involved in developing various types of laser guns to measure yardages on the golf course. One small laser gun, called LittleLaser, appears to have a very large potential market. Because of competition, Eckert does not believe that it can charge more than $84 for LittleLaser. At this price, Eckert believes it can sell 119,000 of these laser guns. Eckert will require an investment of $14,875,000 to manufacture, and the company wants an ROI of 16%. Determine the target cost for one LittleLaser.

Answer 1

Target cost per unit = $64

Step-by-step explanation:

Target cost is the cost at which a product must be produced and sold to achieve a desired profit margin

Target cost =(Sales revenue - (ROI × capital) )/ No of units

Target cost =( (84 × 119,000) - (16%× $14,875,000 ) )/ 119,000 guns

Target cost per unit = (9996000 - 2380000) / 119,000 units= $ 64 per unit

Target cost per unit = $64