Question

Real Wood Structures Company has invested $1,040,000 in a plant to build small tool sheds. The target operating income desired from the plant is $156,000 annually. The company plans annual sales of 1200 sheds at a selling price of $1100 each. What is the target rate of return on investment for Real Wood Structures Company

Answer 1

Target rate of return = $156,000 / $1,040,000 = 15%

What is target rate return?

Market leaders or monopolists nearly exclusively use the pricing method known as target rate of return pricing. Rate of return pricing is a technique used by businesses to set product prices in a way that eventually helps them achieve their main objective or return on invested capital.

What is target return and exchange policy?

• According to Target's regular return policy, you have 90 days from the date of purchase to return an item for a full refund or exchange. Most of the time, you'll receive your refund in the same payment method that you first used to make the transaction. In rare circumstances, you might have to accept an exchange if the product has been used or is damaged.
• By using the goal rate of return on investment, or what the company anticipates from the venture's investments, the firm sets the price for a product or service. The rate of return pricing helps the business generate the necessary amount of profit to keep its liquidity. The price is set so that if sales continue to grow at the rate they are now, the ultimate objective of creating corporate profit is achieved.

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