Question

Shimada Products Corporation of Japan plans to introduce a new electronic component to the market at a target selling price of $15 per unit. The company is investing $5,000,000 to purchase the equipment it needs to produce and sell 300,000 units per year. Its required rate of return on all investments is 12%. Required: Compute the component’s target cost per unit.

Answer 1

Answer: $13 per unit

Explanation:

Thw following information can be gotten from the question:

Sales = 300000 × $15 = $4,500,000

Less: Expected profit = 12% × 5,000,000 = 600,000

Target cost = $3,900,000

Since there are 300000 units, the component’s target cost per unit will be:

= Target cost / Total units

= $3900000 / 300000

= $13 per unit