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 $86 for littlelaser. at this price, eckert believes it can sell 120,000 of these laser guns. eckert will require an investment of $12,000,000 to manufacture, and the company wants an roi of 18%. determine the target cost for one littlelaser.

Answer 1

We can solve this problem by first calculating for the total cost and the total revenue. Then the difference of the total revenue and total cost would be the profit or return on investment.

Profit = Total revenue – Total cost                      ---> 1

 

First, calculating for the total revenue:

Total revenue = $86 * 120,000

Total revenue = $10,320,000

 

Second, calculating for the total cost:

Total cost = X * 120,000

where X is the target cost for one littlelaser

 

It was stated that the company wants a return of investment of 18%, therefore the profit must be:

Profit = 0.18 * $12,000,000

Profit = $2,160,000

 

Substituting to equation 1:

$2,160,000 = $10,320,000 - X * 120,000

X = $68

 

Therefore the target cost is $68